Author: Julian Marshall
It appears that John Meriwether’s golden touch may have deserted him. Following his tribulations at Long-Term Capital Management investors now have little desire to back his judgement.
Over the past year Meriwether has been seeking to raise $1 billion in funds for his latest venture – the Relative Value Opportunity Fund.
However so far the fund, launched by JWM Partners (Meriwether and five former colleagues from LTCM) with an initial $250 million, has reportedly only pulled in $400 million. JWM launched the fund in December, aiming it at high-net-worth clients with $5 million or more to invest.
This time around, having learnt the lessons from LTCM, Meriwether and his team were only looking to leverage by 12 to 18 times funds. By comparison, LTCM was leveraged 28 times.
LTCM looked good for a time, producing returns in excess of 40% in the first two years, yet in the summer of 1998 it lost 90% of its $4 billion capital.
Despite the more conservative approach, and the fact that Meriwether was prepared to waive the 2% management fee for former LTCM investors until they recouped earlier losses, he has been unable to attract the desired funding.
Meriwether, who could not be tracked down for comment at JWM’s Greenwich headquarters, had always intended to get back into the fray after LTCM was bailed out but he was held back by stipulations set out by the 14 banks that put up the $3.6 billion rescue package. Those funds have since been recovered, freeing Meriwether to return
LTCM caused great controversy when the Federal Reserve stepped in to support it. Alan Greenspan, the Fed’s chairman, said at the time that if the hedge fund had been allowed to fail it could have prompted a global market meltdown.
He told the House Banking Committee: “Had the failure of LTCM triggered the seizing up of markets, substantial damage could have been inflicted on many market participants…and could have potentially impaired the economies of many nations, including our own.”
However subsequently one of the bankers who aided its rescue, William McDonough, president of the New York Federal Reserve, showed little remorse last October in announcing LTCM’s demise to an economic conference in Chicago. “I’m happy to tell you that LTCM is very close to being out of business. I can assure you that is a result that pleases me considerably.” His comments on Meriwether’s latest fund have yet to be recorded.
