Meriwether hedge fund loses 9 percent this year

By Dane Hamilton

NEW YORK, March 6 (Reuters) - John Meriwether's Relative Value Opportunity hedge fund is suffering its worst year since inception in 1999 due partly to falling values in commercial mortgage-backed securities, the firm told investors in two recent notes.

Meriwether, the secretive former Salomon Brothers bond trading star who co-founded the failed hedge fund Long-Term Capital Management, told investors the RV Opportunity fund lost 9.19 percent year-to-date through Feb. 28.

The RV Opportunities fund, which was down 4.14 percent in January, is far from alone in suffering from a down-draft in performance related to sinking values and market volatility in various fixed income securities, particularly those backed by commercial and residential mortgages.

The fund is one of several managed by Greenwich, Connecticut-based JWM Partners LLC. The fund manages $1.2 billion. It is one of six managed by JWM.

Most notably, two credit funds that formerly held $3 billion managed by London-based Peloton Partners were forced into liquidation in the last two weeks by what is said was "severe net asset value declines" and a bank credit pullback.

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The RV Opportunities fund said about one third of its losses in January came from "an extreme spread widening in AAA commercial mortgage backed securities," according to a note discussing January performance that was obtained by Reuters.

Commercial mortgage-backed securities, which are bonds backed by office buildings, hotels and shopping malls, slumped this year as rising delinquencies in commercial real estate caused investors to flee the $750 billion market. CMBS lost 3.74 percent in February, their worst month ever, according to Lehman Brothers.

But Meriwether expects the slumping markets to generate investment opportunities.

"While we are clearly disappointed by our recent performance, we remain optimistic about the current opportunity set," said Meriwether in the January note.

"While we do not welcome the increased volatility in our returns, we believe that increased market volatility is one of the primary preconditions for creating interesting relative value situations," he added.

Representatives of JWM Partners declined to comment. Hedge funds, which are private partnerships for wealthy individuals and institutional investors, typically report financial performance only to investors.

The fund posted gains of 5.5 percent in 2007 and gains of 9 percent in 2006, according to the January note. (Additional reporting by Al Yoon in New York; Editing by Andre Grenon)

(Reuters email: dane.hamilton@reuters.com. 646 223 6161. Reuters messaging: dane.hamilton.reuters.com@reuters.net)