Lifetime Achievement Award for Long-Term Capital Vet

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Alternative Investment News will honor John Meriwether with its Lifetime Achievement Award later this month.

John Meriwether, who has dedicated over 30 years to alternative investment strategies and is currently at the helm of JWM Partners, is the recipient of Alternative Investment News' 2006 Lifetime Achievement Award. Meriwether will be honored during an awards ceremony June 28 in New York, where the other winners of AIN's 4th Annual Hedge Fund Industry Awards will be announced.

Does this mean Meriwether is dying? Don't "Lifetime Achievement" awards usually go to people whose lifetime is coming to a close? Has anyone checked with Meriwether doctors?
Meriwether, of course, is probably most famous for his role in the failed Long-Term Capital Management hedge fund. In 1998 the fund, which Meriwether had started in 1994, nearly collapsed. A syndicate of international banks and brokerage firms agreed to bail-out Long-Term Capital with $3.6 billion, at the prompting of the Federal Reserve. So how does running Long-Term Capital lead to a lifetime achievement award?


Here's how.

Yet neither LTCM nor Meriwether broke any securities laws, and the Fed bail-out did not directly involve taxpayer money, instead relying on a consortium of investment banks to buy out the fund and unwind its positions. And while the fund's meltdown in the summer of 1998 was indeed disastrous in terms of performance, the prior year it had returned most of its capital to investors--at annualized gains of over 40%. More importantly, the trades that caused LTCM's plight were not consistent with the firm's models, and were likely not agreed to by all principals involved. "My understanding is there had been a debate within the firm about departing from their core competencies and getting involved with...some things that were a little risky," said Ritter.

Uhm, so it was like a rogue trader, right? That's what brought down Long-Term Capital? Trades "not consistent with the firm's models?" Funny. That's not how we remember it.
Here's what Michael Lewis wrote way back in June of 1999.

The public accounts have suggested that it was lost in all manner of exotic speculations that the young professors had irresponsibly digressed into. The speculations were exotic enough, but they were hardly digressions. When I paged through their trades, the only thing I hadn't expected to find was a taste for betting on corporate takeovers. One hundred fifty million dollars vanished from Long-Term Capital when a company called Tellabs failed to complete its acquisition of a company called Ciena, and the price of Ciena stock, which Long-Term owned, dropped from 56 to 31 1/4. (''This trade was by far the most controversial in our partnership,'' Rosenfeld says. ''A lot of people felt we shouldn't be in the risk arb business because it is so information sensitive and we weren't trying to trade in an information-sensitive way.'') Of course, Long-Term had some complicated notion of its advantage in risk arbitrage, but that notion now looked silly. Still, even taking account of the $150 million loss in Ciena shares, its stock-market trading was profitable.
The big losses that destroyed Long-Term Capital occurred in the areas the young professors had for years been masters of.

Lewis's article is still the best explanation of what happened at Long-Term Capital we've read. it's a blogger cliche, but read the whole thing.
Meriwether Honored For Lifetime Achievement [Alternative Investment News via Crossing Wall Street]

How the Eggheads Cracked
[New York Times]

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