His Hedge Fund Imploded in Spectacular Fashion. His New One Has $12 Billion.
Nicholas Maounis, of the failed Amaranth, has regained investor trust at Verition
Nicholas Maounis oversaw one of the biggest hedge-fund fiascoes in history. Nearly two decades later, he is leading one of the fastest-growing funds.
In 2006, Maounis was caught by surprise by an energy-trading catastrophe at Amaranth Advisors, which he ran at the time. The firm’s collapse cost investors over $6 billion in a matter of days.
Today, Maounis is managing $11.8 billion at Verition Fund Management. The fund, which has spent years overcoming investor concerns, has grown from just around $1 billion in 2019. Maounis helps oversee Verition’s investments and risk management, much as he did at Amaranth.
Maounis’s comeback is a testament to an enduring phenomenon. Wall Street traders regularly get second or third chances, even after enormous and embarrassing losses. Those who blow up in spectacular fashion often attract the most cash for their next endeavors, a true head-scratcher.
Part of the explanation: Investors figure someone who has blown it once has likely learned important lessons. Some investors also feel that a manager who makes a huge mistake could just as easily hit it big next time.
“Every successful trader has a near-death experience,” says Peter Borish, a veteran hedge-fund investor who runs Computer Trading Corp., an investing and consulting firm. “Successful ones bounce back, enhance their risk management and potentially thrive.”
John Meriwether, who helped found Long-Term Capital Management, launched not one but two funds after the hedge fund collapsed in 1998, almost taking the financial world down with it. More recently, Adam Neumann, the executive who co-founded and led WeWork until the company ousted him in the wake of a failed initial public offering, has raised $350 million for a new firm.
It likely helps Maounis that there are investors who are well aware of what happened at Amaranth, yet didn’t experience the fund’s demise.
“Verition’s performance has been great, they have differentiated strategies, and some investors feel it makes sense to give money to someone who has learned an important lesson,” says Clinton Huff, a senior investment officer at Texas Tech University System, a Verition investor. “Fortunately, we weren’t investors in Amaranth, though.”
Maounis declined to comment.
Amaranth’s fall
Amaranth’s collapse was one of the most dramatic in modern history. Maounis, a veteran convertible-bond trader, built Amaranth into a $9 billion, Connecticut-based investing power. Its executives boasted of world-class risk-management systems while backing various investing strategies.
The problems came in 2006 from a successful energy trader in Calgary, Brian Hunter, who was then 32 years old. One of Hunter’s trades, aimed at exploiting the differences in price between natural-gas contracts, went awry. The fund suffered $6.4 billion of losses in a single week, and Amaranth lost over 60% that September. The firm had recorded gains earlier in 2006, so investors lost about half their money.
Amaranth clients who kept their money in the fund for its entire existence didn’t lose money, thanks to earlier gains, a person close to Maounis says.
Hunter couldn’t be reached for comment.
Verition’s rise
Maounis began plotting his comeback even as the Amaranth saga was playing out, according to someone who spoke to him at the time.
Two years later, in 2008, Maounis launched Verition with about $185 million. He hired Josh Goldstein, who had worked for Maounis’s family office, as his No. 2. Maounis told potential clients that Amaranth’s problems had resulted from an unforeseen move in near-term natural-gas futures prices compared with longer-term prices, according to a person close to the matter. He based his new firm in Amaranth’s former headquarters in Greenwich, Conn.
For years, investors were wary, and Verition’s assets were relatively stable and small. In early 2020, as the pandemic began, Verition made money while rivals suffered, and the money began to flow to the fund.
Last year, Verition rose 11.6%, investors say. That is better than the 9.75% return of the HFRI Fund Weighted Composite Index, a proxy for the global hedge-fund industry, though below the 14.59% earned by Vanguard’s 60-40 mutual fund, which invests in stocks and bonds. This year, Verition is up 2.2% through Feb. 27, beating the S&P 500 index.
Verition has scored average annual returns of about 12.9% since launching, according to an investor, topping the broad market. Its “risk-adjusted returns,” or its gains relative to the risk the fund takes, are strong, and they have little correlation to other investments, says Huff, the Texas Tech University System senior investment officer.
It helps that Verition is in the hottest sector in the hedge-fund world. It is a “multimanager” firm, backing 140 trading teams, each managing a small percentage of the firm’s overall assets while betting on various markets, including such niches as Canadian convertible bonds. Other multimanager firms, including Steven Cohen’s Point72 and Israel Englander’s Millennium Management, have soared in size.
Clients note that Verition has a different strategy compared with Amaranth. It also has close to three times the number of risk managers as Amaranth, and it imposes various limits on its portfolio managers, suggesting that Maounis has learned lessons from the Amaranth episode, they say.