(Adds details about fund managers, Enron connection)
NEW YORK, Feb 15 (Reuters) - Hedge fund Saracen Energy suffered heavy losses in natural gas futures this week, forcing it to liquidate some positions, the fund said on Friday.
Saracen would not elaborate on the magnitude of its losses but energy traders said the Houston-based fund could have taken a hit in excess of $500 million, more than a third of Saracen’s estimated $1.3 billion value.
Saracen, which specializes in North American natural gas, crude oil, and power trades, insisted it had enough liquidity to remain solvent.
“We did unwind some unfavorable positions on natural gas this week,” said a Saracen spokeswoman. “We’re continuing to trade and execute our trading strategy.”
Saracen’s big losses on natural gas spreads come less than two years after a similar trading strategy racked up more than $6 billion in losses and sank the giant Amaranth Advisors fund.
Traders said Saracen had shorted the spread between March and April 2009 natural gas futures, betting it would narrow. When the spread began to widen, Saracen was forced to close out its position with heavy losses.
The spread between March and April 2009 natural gas futures jumped more than 50 percent in the week between Feb. 7 and Feb. 14, according to Reuters data. Similar moves also occurred in the same spread in 2010 and 2011.
The liquidation of Saracen’s position was likely one factor in pushing natural gas prices to 14-month highs this week, traders said.
Front-month natural gas futures hit a 14-month high of $8.847 per million British thermal units in Friday’s electronic trade, supported by the market talk of Saracen losses, continued U.S. winter cold, and three straight weeks of larger-than-expected inventory drawdowns.
“They literally moved the markets this week if they unwound positions worth $400 million,” said one gas trader.
VITOL, ENRON LINKS
Saracen was founded by Neil Kelley and Michael Kutsch, two former senior executives with global energy trading house Vitol.
Jeff Richter, a former Enron executive who pleaded guilty to conspiracy to commit wire fraud and making false statements to a federal agency in connection with the California power crisis of 2000, is listed as an affiliate of Saracen on the firm’s investment adviser registration on file with the U.S. Securities and Exchange Commission.
Saracen’s net assets under management have declined since mid-2007, when they stood at $1.6 billion, according to an institutional investor who sold out of Sarecen last year. The fund allows quarterly redemptions after an initial one-year lockup, the former investor said.
Speculation was rampant in energy markets that Saracen was selling its trading book. The fund declined to comment on any of its business activities, but did specifically deny a market rumor that it was selling its book to Goldman Sachs GS.N.
Market sources said Goldman is Saracen’s prime broker. Goldman declined to comment on whether it has a prime brokerage relationship with Saracen.
The 2006 collapse of Amaranth Advisors LLC, one of the biggest hedge fund meltdowns ever, pushed the Commodity Futures Trading Commission to sue Amaranth and trader Brian Hunter, alleging that they tried to manipulate natural gas futures prices. (Additional reporting by Robert Campbell, Janet McGurty, Scott DiSavino, Robert Gibbons, Matthew Robinson and Dane Hamilton; editing by Matthew Lewis)
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