Master of the universe is burnt for a third time by credit crisis

A decade after he was at the centre of the last financial crisis, John Meriwether, founder of Long-Term Capital Management, is a casualty in this one. The hedge fund industry veteran has seen the value of his latest credit market fund plunge by 28 per cent since the start of the year, and his bankers are demanding that the business be slimmed down and made less risky.

And with a Monday deadline for the fund's investors to demand some of their money back, the man once called a "master of the universe" is now engaged in major charm offensive to keep them from abandoning him.

But the bad publicity aside, the most miserable aspect – for someone whose high-octane career has always made him the subject of awe, of envy, or of excoriation – is that Mr Meriwether's current travails are just so ordinary. The $2 trillion hedge fund industry is in a period of contraction and even legendary figures are being forced to tack to the prevailing wind. "We have sharply reduced the risk and balance sheet of the portfolio," Mr Meriwether told investors in the main bond fund run by JWM Partners, the business he created and named after himself in the wake of LTCM's spectacular demise. "While the opportunities are among the best we recall, we continue to balance our need to control risk while attempting to capture the opportunities we feel are available."

JWM's two funds have assets under management of about $1.4bn, but letters to investors sent last week reveal that the main fund is down 28 per cent since the start of January and the second is down 6 per cent.

The successful creation of JWM in 1999 astonished rivals, given that it was not Mr Meriwether's first, but rather his second comeback from disgrace. His first career trading bonds at the financial powerhouse Salomon Brothers was immortalised in the book Liar's Poker by Michael Lewis – to this day a must-read for every terrified novice about to embark on a career on a Wall Street trading desk.

Mr Meriwether and other stars were known at Salomon as Big Swinging Dicks, engaging in games of one-upmanship against their colleagues and taking home multi-million dollar bonuses year after year, traders whose fabulous wealth was eclipsed only by their arrogance.

The collapse of the $130bn LTCM fund, pumped up with debt that had amplified its bets in the credit markets, prompted the Federal Reserve to broker a bail-out by most of the major Wall Street banks, who feared a cascade of losses. Until two weeks ago, it stood as the most memorable near-death experience for global markets in recent years, only now to be eclipsed by the bail-out of Bear Stearns during the current credit crisis.

JWM is big enough and famous enough to weather the storms in the hedge fund industry, unless there is some unexpected new downturn in its portfolio that prompts its lenders to call in their money, analysts say. Its outside investors can only take out one-eighth of their cash in any given quarter, so a rush for the exits on Monday will be manageable.

However, JWM's travails illustrate what has now become commonplace across the industry, that is, that an enforced reduction of risk will crimp future returns and make it much harder to recoup the losses sustained in the turbulent early months of this year, when even supposedly safe investments suffered severe losses. It was trades in these markets that crippled JWM's performance, its investors have been told.