Meriwethers Bond Fund Loses 24%, Endeavour Capital Falls 28%

Date: Thursday, March 20, 2008
Author: Katherine Burton and Saijel Kishan, Bloomberg.com

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, according to two people with knowledge of the matter.

Separately, Endeavour Capital LLP, the London-based firm founded by former Salomon Smith Barney Inc. traders, has fallen about 28 percent this month because of ``extreme volatility and vast moves'' in Japanese bonds, according to two investors.

The worst credit slump in a decade has caused turmoil for fund managers as even AAA rated bonds plunge in value. At least 10 funds, including Peloton Partners LLP and Carlyle Capital Corp., have been forced to close down or sell assets to meet margin calls from lenders.

``There's been a lot of forced de-leveraging,'' said Benjamin Sarly, head of marketing at Sanno Point Capital Management in New York, a relative-value credit fund.

Meriwether's Relative Value Opportunity fund was hurt as bond prices fell amid the selling and margin calls, said the two investors, who asked not to be identified because JWM doesn't publicly disclose returns. The Greenwich, Connecticut-based firm, which is selling holdings to reduce borrowings and lower risk, didn't have any loans called, the investors said.

Meriwether declined to comment.

JWM Partners opened a year after Russia's 1998 default resulted in almost $4 billion of losses for Greenwich, Connecticut-based Long-Term Capital. The Federal Reserve orchestrated a bailout by its 14 lenders.

Japanese Debt

Relative-value funds try to profit from price changes between related bonds. They rarely make outright bets that a specific bond will rise or fall. Investors in these funds expect to make about 1 percent a month.

The $2.88 billion Endeavour Fund sold ``substantially all'' of its Japanese government debt this week, Chief Executive Officer Paul Matthews said today in an interview. He declined to comment on the March decline.

Endeavour Capital also pursues a relative-value strategy, seeking to profit from discrepancies in the prices of various fixed-income securities and currencies. The fund lost money as the spread, or difference, between yields on Japanese 7- and 20- year bonds widened to 1.44 percentage points on March 17, the most in almost nine years. Investors bought shorter-term debt as the benchmark Nikkei 225 stock index fell 13 percent in March.

``You've had a confluence of events that has led to extreme volatility and vast moves'' in Japanese government debt, said Matthews, 47, a former head of global fixed-income arbitrage at Salomon Smith Barney. ``The relative moves we've seen in Japan are not in the realm of anything we've ever seen for Japanese government bonds.''

Leverage and Loss

Endeavour was set up eight years ago with $250 million by Matthews, and Paolo Kind, 54, who was previously the head of research and risk management for global fixed-income arbitrage at Salomon Smith Barney, now part of New York-based Citigroup Inc.

They told investors the fund may borrow as much as $20 for each $1 in capital to boost returns and may experience wide swings in value, according to marketing documents obtained by Bloomberg News. The documents said managers would seek to limit risk so no one position would result in a loss of more than 20 percent.

Matthews said the fund hadn't yet received redemption notices. Requests are due 60 days before the next redemption period at the end of June, he said.

The Endeavour Fund gained 11 percent last year, compared with the 8.85 percent average return for relative-value funds, according to Hedge Fund Research Inc. in Chicago. It returned 0.74 percent through February, according to an investor letter'; the average decline among peers was 0.23 percent.

Hedge funds are private, largely unregulated pools of capital whose managers can buy or sell any assets, bet on falling as well as rising asset prices and participate substantially in profits from money invested.

To contact the reporters on this story: Katherine Burton in New York at kburton@bloomberg.net; Saijel Kishan in London at skishan@bloomberg.net