Troubled hedge fund sells assets

It needs the cash to repay investors who have asked to pull their money out since Amaranth's losses came to light.

Asset manager Fortress Investment Group will help with the sale of Amaranth's remaining assets of about $3.5bn.

Amaranth sold its loss-making energy investments last month in a bid to stay afloat.

Gas prices

Recently valued at $9bn, the fund lost 65% of its value in September after its traders made the wrong bet on the future direction of natural gas prices.

It invested billions, much of it borrowed money, on trades that bet the longstanding trend in rising natural gas prices would continue.

However, natural gas prices dropped sharply during September on higher reserves, a quiet hurricane season and predictions of a mild winter.

The size of Amaranth's energy tradings was such that it struggled to sell itself out of the positions without making huge losses.

The collapse in the fund's value has raised major questions over the lack of adequate risk management controls at Amaranth, and wider concerns over the un-regulated nature of the estimated $1.2 trillion hedge fund market.

Earlier this summer, the head of the US financial markets watchdog, the Securities and Exchange Commission, called for tougher regulation of hedge funds amid concerns over risky investments and rising levels of fraud.

Risky business

Hedge funds are private investment funds, noted for their high management fees and their unconventional ways of investing in the world financial markets.

Many hedge funds specialise in trading derivatives like options or futures.

This involves gambling on the bond, commodity, stock or foreign exchange markets by taking advantage of the difference, or "spread", between current market prices and future prices.

Derivatives can be used to create high-risk investments that offer the potential for huge rewards or losses

In 1998, US hedge fund Long-term Capital Management folded with losses of almost $5bn after its strategy of gambling on government bond prices went sour.

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