Physics boffin who worked for LTCM sets up London hedge fund

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The Independent Online

A City trader who formerly worked at Long-Term Capital Management, the hedge fund that spectacularly blew up a decade ago forcing the Federal Reserve to step in with a rescue package, has teamed up with a former colleague to launch a new fund in London.

David Ko, whose background is in quantum physics, filed documentation earlier this year with Companies House applying to set up a hedge fund called Kurtosis Capital Partners. The other founder named in the document was Stephen Cain, a former senior trader at Deutsche Asset Management.

The company was incorporated at the end of May, but is yet to go live as a regulated business.

Mr Ko's last role was at the hedge fund JWM Partners, according to the Financial Services Authority register, which he left at the end of 2006 after five years at the firm. He had previously worked at Long-Term Capital Management, according to Financial News.

It was at JWM in the UK that Mr Ko worked with Mr Cain, a managing director and global head of currency at Deutsche Asset Management.

Mr Cain previously worked at the US hedge fund Shumway Capital as a managing director and Nylon Capital as a principal before joining JWM in January 2006.

JWM was set up by John Meriwether, a former senior Salomon Brothers bond trader, following the collapse of LTCM in 1998. LTCM, whose downfall was chronicled in the acclaimed book When Genius Failed, had $100bn (£52.4bn) in assets under management at its peak.

Mr Meriwether set up LTCM in 1994, employing traders as well as university professors and the Nobel laureates Robert Merton and Myron Scholes. Initially it generated strong returns of 40 per cent per year using complex models to arbitrage government bonds. But it almost collapsed after the Russian government defaulted on its bonds in August 1998. This left the fund with $1.85bn losses that month, and, to avoid wider ramifications in the financial markets, the Federal Reserve stepped in to organise a bail-out by the group's creditors, which included many of the world's leading investment banks.

Shortly after LTCM's bail-out, Mr Meriwether set up another fixed income hedge fund, JWM, in 1999. There was talk earlier this year that JWM has suffered in the wake of the credit crunch after its biggest fund fell 28 per cent.

John Godden, managing partner at the hedge fund services group Igs Group, said: "There's a huge amount of forgiveness in the hedge fund industry. Ko wasn't the one pulling the levers, and a lot of the people who worked there are regarded as very clever."