Post by jannikki on Aug 5, 2006 2:37:25 GMT -4
PAIN IN THE GAS
BETS AGAINST ENERGY PRICES SINK FUND
By RODDY BOYD and ZACHERY KOUWE
--------------------------------------------------------------------------------
A hedge fund run by the former president of the New York Mercantile Exchange made a gas-propelled exit from existence.
August 4, 2006 -- A hedge fund run by the former president of the New York Mercantile Exchange made a gas-propelled exit from existence when a massive bet on a drop in natural gas prices ran into sweltering summer heat and sky-high energy demand.
MotherRock, a two-year-old hedge fund founded by the former Nymex bigwig, Robert "Bo" Collins, collapsed this week and was said to have lost almost all of its investors' $450 million, according to floor traders and hedge fund investors.
Collins sent investors a letter announcing that he and his partners "were developing a detailed plan for winding down the fund."
Calls to MotherRock's office went unanswered.
The first six months of 2006 were not kind to MotherRock, as the fund reported a loss of 23 percent. But it was in July, when assets dropped to $275 million from redemptions, that Collins was said to have bet the ranch.
According to Sparkspread.com, MotherRock's traders made a massive bet on the decline of prices in natural gas futures. They shorted March futures contracts and hedged the bet - lightly - with a corresponding long position in April contracts which would appreciate in value if natural gas prices rose.
Designed to take advantage of an historical oversupply of natural gas reserves at winter's end, MotherRock was devastated when unprecedented levels of natural gas were withdrawn in the face of the heat wave.
One trader told The Post that the fund's position was down by at least 75 cents per futures contract, if not more. So per 10,000 contracts, the fund's loss was at least $75 million.
As other traders who made a similar bet raced for the exits, MotherRock was stuck with widening losses. Worse, given the size and prominence of the fund, other floor traders took the opposite bet, driving prices higher.
The Post has learned that one of the investors in MotherRock was former NYMEX chairman Vincent Viola - a part-owner of the NBA's Nets - who has shepherded Collins' career from his roots at El Paso Energy to the downtown trading floor.
Another luckless MotherRock investor is said to be Seattle's massive Silver Creek Management, a $5 billion fund of funds.
Silver Creek knows plenty about hedge fund collapses, having had an investment in uber fraud Bayou Capital Management.
A call to the fund was not returned.
www.nypost.com/business/pain_in_the_gas_business_roddy_boyd_and_zachery_kouwe.htm
BETS AGAINST ENERGY PRICES SINK FUND
By RODDY BOYD and ZACHERY KOUWE
--------------------------------------------------------------------------------
A hedge fund run by the former president of the New York Mercantile Exchange made a gas-propelled exit from existence.
August 4, 2006 -- A hedge fund run by the former president of the New York Mercantile Exchange made a gas-propelled exit from existence when a massive bet on a drop in natural gas prices ran into sweltering summer heat and sky-high energy demand.
MotherRock, a two-year-old hedge fund founded by the former Nymex bigwig, Robert "Bo" Collins, collapsed this week and was said to have lost almost all of its investors' $450 million, according to floor traders and hedge fund investors.
Collins sent investors a letter announcing that he and his partners "were developing a detailed plan for winding down the fund."
Calls to MotherRock's office went unanswered.
The first six months of 2006 were not kind to MotherRock, as the fund reported a loss of 23 percent. But it was in July, when assets dropped to $275 million from redemptions, that Collins was said to have bet the ranch.
According to Sparkspread.com, MotherRock's traders made a massive bet on the decline of prices in natural gas futures. They shorted March futures contracts and hedged the bet - lightly - with a corresponding long position in April contracts which would appreciate in value if natural gas prices rose.
Designed to take advantage of an historical oversupply of natural gas reserves at winter's end, MotherRock was devastated when unprecedented levels of natural gas were withdrawn in the face of the heat wave.
One trader told The Post that the fund's position was down by at least 75 cents per futures contract, if not more. So per 10,000 contracts, the fund's loss was at least $75 million.
As other traders who made a similar bet raced for the exits, MotherRock was stuck with widening losses. Worse, given the size and prominence of the fund, other floor traders took the opposite bet, driving prices higher.
The Post has learned that one of the investors in MotherRock was former NYMEX chairman Vincent Viola - a part-owner of the NBA's Nets - who has shepherded Collins' career from his roots at El Paso Energy to the downtown trading floor.
Another luckless MotherRock investor is said to be Seattle's massive Silver Creek Management, a $5 billion fund of funds.
Silver Creek knows plenty about hedge fund collapses, having had an investment in uber fraud Bayou Capital Management.
A call to the fund was not returned.
www.nypost.com/business/pain_in_the_gas_business_roddy_boyd_and_zachery_kouwe.htm