Brian Hunter - Chasing the Bonus
When studying the stories of successful traders who motivate you and me to go to the end and not give up halfway, it is very important not to throw away the facts of the biggest defeats and losers traders.
Of course, for motivation you need to look up to only the best, but it is the stories of crashes that show how thin the line is between a loss-making and a profitable trader, how one mistake can turn not only your world, but the world of other people, team members, investors and even the entire financial sector.
Actually, the story of Brian Hunter is an excellent example of greed and greed, which simply led to irreparable consequences, and his mistake led to the largest ruin of a hedge fund.
To understand the nature of what happened, I suggest you read the history of what is happening more carefully.
First successes and defeats
After becoming an employee of Deutsche Bank, his main task was natural gas trading. The goal of almost any bank and hedge fund is minimal risks with acceptable returns. In the first years, Brian Hunter coped with this task quite well and earned good commissions for his activities.
So for the first time in years, according to some sources, Brian Hunter earned approximately $30 million for his bank, and his department became one of the leading ones in the organization. However, a year after the spectacular rise, Brian Hunter and his department lost 51.2 million US dollars on the eve of Christmas, which completely erased all the gains over the past two years.
For such a failure, the company’s management decided to deprive the trader of his bonus, but he, in turn, sued the company and loudly lost.
Second chance. Working at Amaranth Advisors
Brian Hunter after some time got a job at Amaranth Advisors. As a result of the interview, Brian managed to convince management that the loss at Deutsche Bank was completely predictable, and its gas operations were aimed at the long term.
Actually, the company believed in the manager’s strategy and allowed it to continue working with natural gas.
His first year at Amaranth Advisors was so successful that by the end of it, Brian Hunter had earned $100 million in commissions and the fund itself was just over a billion dollars. Brian Hunter bet on higher gas prices because Hurricane Katrina had recently passed through and Hurricane Rita was approaching.
The consequences, which were the disruption of production levels in the Gulf of Mexico, led to a huge increase in the price of the natural resource and the very rapid enrichment of Brian Hunter as a trader.
Some time later, Hunter was fined seven million dollars for manipulating gas prices on the stock market, but this sum was simply insignificant compared to the potential profit.
Collapse of Amaranth Advisors
Inspired by the successful end of the year, Brian Hunter tried to repeat his record and made a huge bet on rising gas prices in 2006. Unfortunately for Hunter, it's been a pretty great year for the gas industry, so the price has taken a big hit.
Since the gas market is considered to have low liquidity, Hunter tried to turn the market around by adding billions of dollars in purchases. Perhaps he would have been able to do what he had planned, but at the same moment trader John Arnold from the Centaurus fund acted as a counterparty and actively sold gas, pursuing the goal of turning the market down.
Ultimately, due to the lack of bad fundamentals, Brian lost his unequal battle with the market and ruined the Amaranth Advisors hedge fund for six and a half billion dollars. This event went down in history as the largest hedge fund failure. At the same time, his counterparty John Arnold earned as much as two billion dollars from Hunter’s stupidity.
In 2007, after the worst crash in history, Brian Hunter founded his hedge fund and successfully continued his activities, attracting 1 billion investments.