John Meriwether

John Meriwether built his reputation as the head of the bond arbitrage desk at Salomon Brothers during the 1980s, assembling a team of quantitatively sophisticated traders that became the most profitable unit on Wall Street. He left Salomon in 1991 following a Treasury auction scandal and in 1994 founded Long-Term Capital Management alongside partners including Myron Scholes and Robert Merton — both of whom would receive the Nobel Prize in Economics in 1997. LTCM pursued convergence arbitrage in fixed-income markets, seeking to profit from pricing discrepancies between related securities while using extreme leverage — at its peak the fund had roughly $125 billion in assets and over $1 trillion in notional derivatives exposure on a capital base of $4.7 billion. The strategy worked brilliantly through 1997, with annualised returns exceeding 40%. The 1998 Russian debt default triggered a global flight to quality that caused the pricing relationships LTCM relied upon to diverge rather than converge, leading to losses of over $4 billion in a matter of weeks. The Federal Reserve Bank of New York orchestrated a $3.65 billion private bailout by 14 banks to prevent a disorderly unwind. The LTCM episode remains the defining case study in leverage risk, tail risk, and model risk in financial education. Meriwether subsequently founded JWM Associates and Quantitative Trading Fund, though neither recaptured the scale of LTCM.