Meriwether Launching a Third Hedge Fund After Driving Two Into the Ground


There simply must be too much money on this earth (right Ben?) as the infamous John Meriwether, after driving his 2nd hedge fund into the ground early last year, [Mar 28, 2008: Founder of Long Term Capital Failing Again] has found a new round of suckers to invest with him again. For someone in my position this story is the type that creates the propensity to bang a head into a sturdy wall. Somehow a man whose “ability” required the Federal Reserve to make the first move that really set the entire precedent of “too big to fail” in 1998 by “rescuing” his hedge fund (along with the bankers!), and concurrently re-opened (and failed) a 2nd time, can walk on water and raise money with his magic wand. Details on the “original bailout” of Long Term Capital here – the amount, $3.5 Billion, that was considered “too big to fail” back then, is amusing in retrospect to what we’ve just done the past 18 months.

This guy must be able to sell ice cubes to Eskimos. *()@*#()@&&#*#!!!!


John Meriwether, the hedge fund manager and arbitrageur behind Long-Term Capital Management, is in the process of setting up a new hedge fund – his third.

JWM Partners (his second hedge fund) was set up soon after the collapse in 1998 of Mr Meriwether’s first – and most infamous – fund, LTCM, which triggered a wave of panic across the world’s markets and prompted the US Federal Reserve to take the then-unprecedented step of orchestrating a multi-billion dollar bail-out.

According to HFMWeek, an industry publication, the fund will open to investors in 2010. (emphasis added)

And here is the most wonderful point…

The fund is expected use the same strategy as both LTCM and JWM to make money: so-called relative value arbitrage, a quantitative investment strategy Mr Meriwether pioneered when he led the hugely successful bond arbitrage group at Salomon Brothers in the 1980s. (emphasis added)

Make money? Yes – until it blows up in a “Black Swan” event that seems to his said strategy every 7-8 years. Oh wait, I’m sure there will be improvements this time around, just as I’m sure assurances were made that the 2nd fund would never fail like the 1st.

Relative value trades profit by betting on unusual pricing relationships between securities, anticipating a return to an historically modelled “normal” state between them.

However, as Mr Meriwether’s experience shows, relative value strategies are not without their pitfalls. The strategy typically has a high “blow-up” risk because of the large amounts of leverage it uses to profit from often tiny pricing anomalies. (emphasis added)


It’s not clear how much leverage Merriwether and his merry band of investors will be willing to stomach in the latest fund. (The fund, which will be called JM Advisors Managements, is slated to open next year, according to the FT) But in some ways that’s beside the point. The fact that Merriwether – whose name is synonymous with the high-flying hedge fund boom earlier this decade — is back in action says a lot more about investors’ overall appetite for risk. Namely, it’s back. (emphasis added)

About Mark Hanna 542 Articles

Affiliation: Hanna Capital, LLC

Mark Hanna is President and Owner of Hanna Capital, LLC, a registered investment advisory firm. Mark has been a follower of markets since the late 80s, with a focus on individual equities since the mid 90s. He has been a well known commentator in the financial blogosphere for the past 5 years, following a career in corpoporate finance and accounting. Mark attended the University of Michigan where he graduated with a degree in Economics.

As an avid reader, Market Montage is the personal blogging site for Mark to share his views on economics, markets, and the like. Occasional cynicism and wit shall be deployed in his postings.

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