We'd like to take a moment to appreciate the closing of the Relative Value Opportunity II fund, the main fund of hedge fund JWM Partners. From the beginning, JWM defied expectations. Not by making money — it is going out having lost 44 percent between September 2007 and this February — but by existing at all, seeing as its founder, John Meriwether, was the force behind Long Term Capital Management, the hedge fund whose heavily leveraged bets on the European bond market brought the financial system to the brink of collapse back in 1998.
That Meriwether was able to raise the money for a new endeavor in the wake of that was frankly miraculous; but his capitulation in the face of the current recession (if it is, in fact, a capitulation — he has risen unscathed from ashes before), is not as much of a surprise. It does, however, feel poignant, even symbolic. The intervention of the federal government in the matter of LTCM seems, in many ways, to be the foundation on which our current financial predicament was built — from it, financial institutions learned that the huger and stupider risks you take, the more likely it is the federal government will bail you out. The closing of Meriwether's sophomore effort is, in a way, like the end of a chapter and the beginning of a new one, the closing of one door and the opening of another, the quiet death of an exiled dictator as a new one gains power. As one analyst tells Bloomberg:
“For many investors, John Meriwether is by now just another hedge-fund manager. LTCM’s infamy was a big story in 1998, but the events of 2008 might finally relegate LTCM and 1998 to footnote status.”
Amen. And here's to hoping that future villains won't be so lucky.
Meriwether Said to Shut Hedge Fund; London Chief Plans Startup [Bloomberg]
Earlier: Meriwether Said to Shut JWM Hedge Fund After Losses
UPDATE: Meriwether Shutting Fund Firm [WSJ]