LTCM Founder Meriwether Shuts Down Current Fund

Hedge fund manager John Meriwether, whose Long Term Capital Management fund roiled global markets when it collapsed, is shutting down his current hedge fund, a person familiar with his plans said.

For the second time in nearly a decade, Meriwether is shutting down his flagship portfolio, having decided to liquidate the Relative Value Opportunity II fund after facing heavy losses and redemption requests, the source said.

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At its peak in 2007, the bond fund invested $2.7 billion for roughly two dozen clients, including former partners at Meriwether's failed Long Term Capital Management. At the end of April, it had roughly $481 million.

Although the portfolio was in the black this year—returning roughly 1 percent in the first five months of 2009—last year's 41.5 percent loss, coupled with investors' demands to get their money back, dealt it a severe blow.

Late in 2008, Meriwether also lost four of the firm's seven active partners and told investors that he has been forced to cut staff at Greenwich, Connecticut-based JWM Partners in the wake of plummeting assets.

For months, Meriwether and his partners had debated what to do, first trying to persuade clients to stay with the firm and then deciding to close down the fund.

"It was a group decision and had been thought about for some time," said the person familiar with Meriwether's plans. The source was not authorized to speak publicly about those plans.

It is unclear what Meriwether, 61, once among the most prominent managers in the $1.3 trillion hedge fund industry, will do next, the source said.

His decision to close comes in the wake of news that several other prominent managers, including Pequot Capital's Arthur Samberg, Raptor's James Pallotta and Cantillon Capital Management's William von Mueffling, have shut down hedge funds.

Meriwether and his clients may now be feeling echoes of 1998, when Long Term Capital Management was forced out of business, becoming the industry's biggest-ever failure.

LTCM lost nearly all of its $5 billion in capital in the summer of 1998 after Russia defaulted on its bonds and devalued its currency.

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The hedge fund's losses helped spark a global financial crisis and ultimately required a bailout from more than a dozen banks. Since then, bigger funds have failed, and LTCM's importance for the hedge fund industry has faded, several industry analysts have said in recent years.

In 1999, Meriwether and a handful of deputies set up the new firm in the same space where LTCM had operated.

The new fund took less risky positions than LTCM but still used leverage, or borrowed money, to try to boost returns. This strategy hurt the fund last year as the financial crisis took hold, two people familiar with its trading strategy have said.

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