Here We Go Again - Sowood Manager Launching New Fund

Includes: DIA, QQQ, SPY
by: Todd Kenyon, CFA

Hot on the heels of reports that former LTCM manager John Meriwether is once again losing investor's money (why he even has investors still confounds me), we now learn that former Sowood manager Jeffrey Larson is starting a new fund.

Don't remember Sowood? Its former investors surely do, since they lost more than half their money in the matter of a few days last July. The $3 billion fund ultimately returned $1.4B to investors, vaporizing $1.6B in less than a week. Once again, our "friend" leverage was up to his old tricks. It wasn't enough for Mr. Larson to simply invest the $3B he was given, so of course leverage was the answer. Note that his portfolio was supposedly "market neutral" and hedged against losses. Hedged, that is, unless something unexpected happened (does one need to hedge against expected events?), which it did forcing him to sell the portfolio to Citadel at distressed prices. Once again, much like LTCM or Bear Stearns, it was leverage that forced the fund to liquidate.

Larson was reportedly "devastated" by the losses. Heck, I am sure we would all be devastated if one day we were collecting $60 million in annual management fees, and the next, POOF, no more management fees. Not to mention, no more 20% performance fees either. I am sure it really ruined his afternoon to have that cash spigot shut off.

An article in the Boston Globe tells us that friends of Mr. Larson report that he is "eager" to get back into the investment business. I mean, come on, it's been almost a year without a shiny new stack of more than 1 million dollar bills to bring home at the end of each and every week. Poor guy.

To date he has apparently obtained interest from potential investors (i.e., "suckers") of $250 to $500 million. Hey, it's been 9 months, I am sure he's learned his lesson (just look at Meriwether - the first time he brought the World's financial system to its knees, whereas this time he is only 15x levered and is just losing hundreds of millions - he's not even responsible for the current world financial crisis!). Sure, Mr. Larson will have to slum it on a mere $100-200 grand per week, but I am sure the joy of just being back in the investment business will make up for it.

Let us not forget that Mr. Larson ran money for Harvard's endowment and apparently did well before starting Sowood. Yet Harvard lost $350 million in Sowood's collapse - anyone think they're giving Larson a 2nd chance? How about the Mass. pension fund - they only lost $30 million?

You know, you just can't make this stuff up...

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