No Exit Bonus? What's that About?

No Exit Bonus? What's that About?

September 27, 2006

I’ve heard of some tough bosses but really, this is going too far. This poor young fellow in the story below left the firm after working really hard. They didn’t even give him a good-bye payment. What is Greenwich coming to?!

SAN FRANCISCO (MarketWatch) — Brian Hunter, the energy trader whose big natural-gas bets cost Amaranth Advisors LLC roughly $6 billion earlier this month, has left the firm, a person familiar with the situation said Wednesday.
Amaranth has told investors in private meetings that Hunter wasn’t given any termination payment, the Financial Times reported, citing unidentified people close to the matter.
Amaranth, a multistrategy hedge fund that had assets of $9.2 billion at the end of August, lost $6 billion earlier this month after Hunter’s massive natural-gas bets went awry.

There is a lesson in this fiasco. We have trained an entire generation of MBA students–who are now driving the bus–that you can pretty much wipe out risk with a PC, a spreadsheet, a few siple regressions, and a covariance matrix. Then, when things go wrong, it wasn’t anybody’s fault because the event was almost zero probability. We need to drill into students heads that correlations are, at best, transitory manifestations of collisions which further collisions will erase. They are not a suitable foundation for betting the ranch. Read Exploring Complexity, by Nicolis and Progogine to learn how disequilibriuym constraints can give rise to correlation at a distance. Read The End of Certainty to learn why the correlations don’t last. Irving Fisher (a physics student of Josiah Gibbs) knew this more than 100 years ago when he described how the motion of a ship’s mast, displaced by a puff of wind, will gradually converge on equilibrium, but real world ships are endlessly buffeted by subsequent gusts, keeping the mast permanently in motion. Time to learn it again.

JR

Amaranth trader leaves hedge fund after big loss: source
Marketwatch – September 27, 2006 3:36 PM ET

SAN FRANCISCO (MarketWatch) — Brian Hunter, the energy trader whose big natural-gas bets cost Amaranth Advisors LLC roughly $6 billion earlier this month, has left the firm, a person familiar with the situation said Wednesday.

Amaranth has told investors in private meetings that Hunter wasn’t given any termination payment, the Financial Times reported, citing unidentified people close to the matter.

Amaranth, a multistrategy hedge fund that had assets of $9.2 billion at the end of August, lost $6 billion earlier this month after Hunter’s massive natural-gas bets went awry.

John Rutledge

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