Meriwether Closes Fund. This is Becoming a Regular Decade Event.....Almost Like Locusts!

Bloomberg News reports today, Meriwether Closes JWM Hedge Fund After Losses

John Meriwether, who roiled global markets when Long-Term Capital Management LP collapsed in 1998, plans to shut his current hedge fund, according to a person familiar with the matter.  JWM Partners LLC is closing its main Relative Value Opportunity II fund after losing 44 percent from September 2007 to February 2009. 

This is easy!  Here's something we wrote March 2008

Everybody deserves another chance..and another and another......

So recently, slipped in with the Bear Stearns drama, the story that JWM Partners LLC, the investment firm run by ex-Long-Term Capital Management LP chief John Meriwether, lost 24 percent in its $1 billion fixed-income hedge fund this year through March 14. This is really something. We don’t know what to laugh at first.

That Meriwether blew through another 200+ million of other people’s money

Or

That Meriwether, of Long Term Capital Management, the hedge fund that dropped a cool $4bb (remember when $4bb was a big number? Now its Citi or UBS’s monthly loss run rate!) and nearly took down the global financial system, was able to raise another billion to begin with!

We are going to go with the latter because the former is actually kind of obvious. If you peel away all the glitz and intrigue that envelopes “high finance” what you will find is groups of people behaving a lot like lab rats. We are sure that you have seen these experiments where a lab rat is put into a maze and sent out to navigate through the maze, find food and do whatever it takes to get the food. Often, when the rat finds the food source he is required to hit a lever with his paw (or something to that effect) and a food pellet comes out. Once the rat has figured out that hitting that lever with his paw delivers the food, he’ll keep hitting that sucker until either the food runs out or he eats himself sick. Now, what if there are two levers next to each other and hitting both simultaneously makes twice the amount of food come out. The rat will key on that new “iteration” and figure out a way to hit the levers at the same time and get twice as much food. Eventually, the rat either depletes the food source or he eats himself sick.

Now lets think about “high finance” and the majority of hedge funds out there. Like Richie said the other day, “How many really brilliant ideas come along in a twenty year period…one?..two?” Essentially these guys either put the on the “carry trade” or the “convertible arbitrage”, mostly copying each other and then leverage it up to the hilt. There are iterations of these strategies, just like the lab rat experiment, but the roots of these iterations are set in the carry and convertible arb. trade….period! The hedge fund is set up to pay itself very nice annual management fees (1 or 2% fee for assets under management and then 20% of all earnings above a certain set benchmark). As long conditions are right for the trading strategies…essentially easy borrowing conditions for leverage, liquidity for whatever they are levering up and market risks behaving in a uncorrelated manner….the hedge fund makes money for itself and it’s investors. However, when these conditions listed above all disappear…overnight! We get a very bad result. Usually the investors lose a whole lot more than they made in the good years, the fund shuts down and the managers leave….not giving back all the nice fees that they made off the investors in the good years. So the fact that JWM lost 24% really should come as no surprise. The reality is, eventually almost all of them are designed to explode, just like the poor lab rat.

The surprise is how in the hell does Meriwether keep getting people to give him all that money!! This is the guy who ran the Salomon Brothers Treasury desk that was caught in the early 90’s bid rigging the U.S. Treasury Auctions. That isn’t just serious stuff, it’s criminal stuff! We know because the 2-yr trader who worked for Meriwether, Paul Mozer went to jail! And Salomon Brothers had to pay $290mm in fines.

So after costing Salomon Brothers their reputation and $290mm (not to mention poor Mozer going to the clink!) Meriwether starts Long Term Capital Management a couple of years later and gets billions to manage. I remember people begging to get in! Most of you remember that in 1998 Long Term exploded, wiping out $4bb. So you would think that that would be the end of John and the capital management business. Hell no, this is America! Everybody deserves a third chance! I’ve never met this guy but he has to be a cross between Rasputin and Bill Clinton to get people to plow money his way again! It’s amazing! We hope at least that the investors get treated like high rollers at the casinos. You know, front row seats to the Stones, free booze, private jets, ocean views, etc so when they lose their dough at the Meriwether baccarat table at least they had a good time!

In any event, Mr. Meriwether…we stand in awe of your powers of persuasion. We wish you luck on your fourth chance….which in this crazy, mixed up world….we are sure you will get.

So recently, slipped in with the Bear Stearns drama, the story that JWM Partners LLC, the investment firm run by ex-Long-Term Capital Management LP chief John Meriwether, lost 24 percent in its $1 billion fixed-income hedge fund this year through March 14. This is really something. We don’t know what to laugh at first.

That Meriwether blew through another 200+ million of other people’s money

Or

That Meriwether, of Long Term Capital Management, the hedge fund that dropped a cool $4bb (remember when $4bb was a big number? Now its Citi or UBS’s monthly loss run rate!) and nearly took down the global financial system, was able to raise another billion to begin with!

We are going to go with the latter because the former is actually kind of obvious. If you peel away all the glitz and intrigue that envelopes “high finance” what you will find is groups of people behaving a lot like lab rats. We are sure that you have seen these experiments where a lab rat is put into a maze and sent out to navigate through the maze, find food and do whatever it takes to get the food. Often, when the rat finds the food source he is required to hit a lever with his paw (or something to that effect) and a food pellet comes out. Once the rat has figured out that hitting that lever with his paw delivers the food, he’ll keep hitting that sucker until either the food runs out or he eats himself sick. Now, what if there are two levers next to each other and hitting both simultaneously makes twice the amount of food come out. The rat will key on that new “iteration” and figure out a way to hit the levers at the same time and get twice as much food. Eventually, the rat either depletes the food source or he eats himself sick.

Now lets think about “high finance” and the majority of hedge funds out there. Like Richie said the other day, “How many really brilliant ideas come along in a twenty year period…one?..two?” Essentially these guys either put the on the “carry trade” or the “convertible arbitrage”, mostly copying each other and then leverage it up to the hilt. There are iterations of these strategies, just like the lab rat experiment, but the roots of these iterations are set in the carry and convertible arb. trade….period! The hedge fund is set up to pay itself very nice annual management fees (1 or 2% fee for assets under management and then 20% of all earnings above a certain set benchmark). As long conditions are right for the trading strategies…essentially easy borrowing conditions for leverage, liquidity for whatever they are levering up and market risks behaving in a uncorrelated manner….the hedge fund makes money for itself and it’s investors. However, when these conditions listed above all disappear…overnight! We get a very bad result. Usually the investors lose a whole lot more than they made in the good years, the fund shuts down and the managers leave….not giving back all the nice fees that they made off the investors in the good years. So the fact that JWM lost 24% really should come as no surprise. The reality is, eventually almost all of them are designed to explode, just like the poor lab rat.

The surprise is how in the hell does Meriwether keep getting people to give him all that money!! This is the guy who ran the Salomon Brothers Treasury desk that was caught in the early 90’s bid rigging the U.S. Treasury Auctions. That isn’t just serious stuff, it’s criminal stuff! We know because the 2-yr trader who worked for Meriwether, Paul Mozer went to jail! And Salomon Brothers had to pay $290mm in fines.

So after costing Salomon Brothers their reputation and $290mm (not to mention poor Mozer going to the clink!) Meriwether starts Long Term Capital Management a couple of years later and gets billions to manage. I remember people begging to get in! Most of you remember that in 1998 Long Term exploded, wiping out $4bb. So you would think that that would be the end of John and the capital management business. Hell no, this is America! Everybody deserves a third chance! I’ve never met this guy but he has to be a cross between Rasputin and Bill Clinton to get people to plow money his way again! It’s amazing! We hope at least that the investors get treated like high rollers at the casinos. You know, front row seats to the Stones, free booze, private jets, ocean views, etc so when they lose their dough at the Meriwether baccarat table at least they had a good time!

In any event, Mr. Meriwether…we stand in awe of your powers of persuasion. We wish you luck on your fourth chance….which in this crazy, mixed up world….we are sure you will get.

Comments

[williambanzai7]

Blow it up and start over....

http://www.youtube.com/watch?v=-XxLh-ujFuk