Risk management and investment in hedge funds : The Amaranth Case

Petitjean, Mikael [FUCAM] Lebrun, Sébastien

The objective of this study is to identify the warning signs of the collapse of Amaranth Advisors hedge fund, which lost more than 6 billion dollars in 2006 and broke the record loss previously held by LTCM in 1998. The method used is the one developed by EuroPerformance and EDHEC (2006) to compare the performance of hedge funds and establish the Alpha League table, which ranks hedge funds according to a multi-criteria rating. The results highlight the dramatic change of target adopted by Amaranth and the spectacular increase in risk. Based on these results, Amaranth would have been excluded from the Alpha League table one year before the bankruptcy of the fund.