Crocodile tears

Brits don’t really allow second chances. Perhaps it’s a reflection of what remains of the Puritan work ethic in our race memory – a very unforgiving form of Protestantism. Americans, on the other hand, are well up for being bilked seemingly endlessly. Take, for example, the colourful if not obviously successful investment history of John Meriwether, who achieved a degree of fame for a walk-on role in Michael Lewis’ 1989 Wall Street exposé, Liar’s Poker. From Wikipedia:

After graduation, Meriwether moved to New York City, where he worked as a bond trader at Salomon Brothers. At Salomon, Meriwether rose to become the head of the domestic fixed income arbitrage group in the early 1980s and vice-chairman of the company in 1988.

In 1991, Salomon was caught in a Treasury securities trading scandal perpetrated by a Meriwether subordinate, Paul Mozer. Meriwether was assessed $50,000 in civil penalties. [Strike One.]

Meriwether founded the Long-Term Capital Management hedge fund in Greenwich, Connecticut in 1994. Long-Term Capital Management collapsed in 1998.[4] [Strike Two.] The books When Genius Failed: The Rise and Fall of Long-Term Capital Management and Inventing Money: The Story of Long-Term Capital Management and the Legends Behind It detail the events leading up to and following Long-Term Capital Management’s demise.

JWM Partners

A year after LTCM’s collapse, in 1999, Meriwether founded JWM Partners LLC. The Greenwich, Connecticut hedge fund opened with $250 million under management in 1999 and by 2007 had approximately $3 billion. The Financial crisis of 2007-2009 badly battered Meriwether’s firm. From September 2007 to February 2009, his main fund lost 44 percent. On July 8, 2009, Meriwether closed the fund. [Strike Three. Keep playing.] In a Bloomberg story on the closing of JWM Partners, Tammer Kamel, an investment adviser, said that, “For many investors, John Meriwether is by now just another hedge-fund manager,” and that “LTCM’s infamy was a big story in 1998, but the events of 2008 might finally relegate LTCM and 1998 to footnote status.”

JM Advisors

Meriwether opened his third hedge fund venture, named JM Advisors Management, also based in Greenwich, Connecticut, in 2010. The fund is expected to use similar strategies as both LTCM and JWM, namely highly leveraged “relative value arbitrage”..

As Oscar Wilde never quite said, to lose one’s reputation in finance once may be regarded as a misfortune, but to do so three times over starts to make you look like a bit of a cockwomble. That said, as Michael Douglas’ character in Wall Street puts it,

A fool and his money are lucky enough to get together in the first place.

Which brings us to Neil Woodford’s surprising fund management relaunch after the investment and public relations disaster that was the Woodford Equity Income Fund. Patrick Hosking, for The Times:

In an extraordinary interview with The Sunday Telegraph, Woodford managed to come across as self-serving, self-pitying and borderline delusional.
The one thing he did apologise for is the one thing he had no need to apologise for. He said he was sorry for the two years of underperformance in the run-up to the unravelling of Woodford Equity Income, the once £10 billion fund at the heart of his empire. No one sensible blames fund managers for patches of underperformance. Very few fund managers can unvaryingly produce strong returns apart from the fraudster Bernie Madoff.
This all looks completely genuine, too.
What investors can’t forgive is the way he completely changed the strategy as he started to face a wave of redemption requests, bent the rules and tried to disguise it from investors.
Out went all the lovely liquid, dividend paying blue-chip shares. The fund was gradually transformed to one taking huge bets on illiquid and high-risk technology stocks. Woodford seems to be in denial about that reckless shift in philosophy. “My investment approach never changed,” he told the Telegraph.
The debacle was everyone else’s fault, apparently. He singles out Link, the authorised corporate director, for making the decision to suspend and then liquidate the fund. Link’s sins were indeed legion, but they came much earlier, when it repeatedly turned a blind eye to Woodford’s contrivances to keep the fund within the letter of the rules, while flouting their spirit. The suspension and liquidation was logical given the near
certainty of a stampede out of the fund. Link’s failings came in being a poodle to Woodford for years, not when it belatedly showed some backbone.
There were those sham listings on the preposterous Guernsey stock exchange. Those were entirely down to the investee companies’ decisions, according to Woodford. Nothing to do with the hugely influential Woodford threatening to offload shares in their companies unless they did as he wanted, to make his haemorrhaging fund look more liquid than it was..
Admittedly, the capital markets, those who work within them, and those who report on them, can all be unforgiving. But every industry professional knows (or at least should know) how the game is played. So if you benefit from the rising tide of press adoration on the way up, don’t be too surprised if, for example, the piranhas start to circle when they scent blood on the ebb tide.
We draw little pleasure from large numbers of private investors losing significant sums of money. We draw even less pleasure from the architect of their misfortune behaving, by all accounts, as if he has learnt nothing from the experience. It shows, we would suggest, immense poor taste for a high profile failure seeking another bite of the cherry given a seeming total lack of willingness to accept responsibility for the first blow-up. That sense of chutzpah may carry weight in the US markets but this is Britain, and we do things differently here. Fool me once..

Tim Price is co-manager of the VT Price Value Portfolio and author of ‘Investing through the Looking Glass: a rational guide to irrational financial markets’. Email us: info@pricevaluepartners.com.

Price Value Partners manage investment portfolios for private clients. We also manage the VT Price Value Portfolio, an unconstrained global fund investing in Benjamin Graham-style value stocks and specialist managed funds.