Meriwether fails again as his hedge firm JWM shuts down its main fund

<div>JOHN MERIWETHER, the hedge fund veteran whose last firm Long Term Capital Management (LTCM) spectacularly collapsed just over 10 years ago, is closing his main hedge fund at JWM Partners.<br /><br />His Relative Value Opportunity II hedge fund, which invested in bonds, has run aground after losing 44 per cent of its value over the last two years as bond spreads hit all-time wides and prices plummeted, according to a source close to the matter.<br /><br />The fund&rsquo;s current value is unclear &ndash; it last reported at the end of April that it was running client assets worth $481m (&pound;300m). Before the losses took hold in 2007, the fund ran $2.7bn for roughly 24 clients.<br /><br />Investors are thought to include former partners from Meriwether&rsquo;s last failed firm LTCM.<br /><br />The JWM fund was in the black this year so far, gaining one per cent in the first five months of 2009, but last year&rsquo;s massive losses and investor demands to withdraw their capital have finally taken their toll.<br /><br />For months, Meriwether and his partners debated what to do, the source said, first trying to persuade clients to stay with the firm and then deciding to close down the fund.<br /><br />&ldquo;It was a group decision and had been thought about for some time,&rdquo; the source added.<br /><br />It is unclear what Meriwether, once among the most prominent managers in the global $1.3 trillion hedge fund industry, will do next.<br /><br />The decision to close comes in the wake of news that several other prominent managers, including Pequot Capital&rsquo;s Arthur Samberg, Raptor&rsquo;s James Pallotta and Cantillon Capital Management&rsquo;s William von Mueffling, have shut down hedge funds.<br /><br /><strong>JOHN MERIWETHER<br />FOUNDER<br />JWM PARTNERS</strong><br /><br />John Meriwether, 66, is seen as the pioneer of fixed-income arbitrage, a process where a fund manager seeks out inefficiencies in the pricing of bonds. The risky technique has been compared to &ldquo;picking up nickels in front of a steamroller&rdquo;.<br /><br />He spent much of his early career at Wall Street investment bank Salomon Brothers, rising to become the head of US fixed-income arbitrage in the early 1980s before becoming vice chairman of the firm in 1988.<br /><br />But his meteoric rise was tainted when in 1991 Meriwether was implicated in a scandal over the trading of US government bonds, an affair that cost him a $50,000 civil penalty.<br /><br />He left Salomon to found Long Term Capital Management (LTCM) in Conneticut in 1994, although the firm spectacularly collapsed in 1998.<br /><br />Meriwether and his clients may now be recognising echoes of 1998, when LTCM lost nearly all of its $5bn (&pound;3.2bn) in capital after Russia defaulted on its bonds and devalued its currency.<br /><br />The hedge fund&rsquo;s losses acted as one of the catalysts of a global financial crisis and ultimately required a bailout from more than a dozen banks.<br /><br />In 1999, Meriwether and a handful of deputies set up the latest firm, JWM Partners, with the same type of bond investing strategy LTCM had operated.<br /><br />The new fund took less risky positions than LTCM but still used leverage, or borrowed money, to try to boost returns, leaving Meriwether exposed to yet another costly failure.</div>