NEW YORK (CNNfn) - Long-Term Capital Management, the embattled hedge fund that required a $3.5 billion bailout from Wall Street's top investment banks last year, plans to repay its original investors by the end of the year.
In a letter sent to its earliest investors Thursday, Long-Term Capital's managers said it would repay the group's initial investors -- primarily wealthy individuals and institutions -- in full by year's end "to permit them to reinvest as they choose," said Peter Rosenthal, a company spokesman.
The payment -- which sources place between $450 million and $500 million -- comes as the hedge fund reported a 20 percent gain in portfolio value since it nearly collapsed last fall.
The 14 investment banks that helped bail the fund out last September --including Merrill Lynch & Co. (MER), Goldman Sachs (GS), Morgan Stanley Dean Witter and USB Securities, among others -- also could see some return on their investment as well, although such payments are not clearly spelled out in the letter.
The Greenwich, Conn.-based hedge fund, founded by former Salomon Inc. Vice Chairman John Meriwether, roiled markets last fall when it was nearly forced to liquidate billions of dollars in investments to meet minimum capital requirements before the Federal Reserve stepped in to negotiate a bail-out plan.
Using less risky investments controlled predominantly by the investment bank consortium, the fund quickly returned to profitability, however, and Meriwether is now reportedly talking to other Wall Street executives about buying out the fund and re-launching it under a new image.
Steven Lonsdorf, president of Van Hedge Fund Advisor International, said while the repayment plan is "a nice gesture," he would be very surprised if many are willing to hand over large chunks of capital to Meriwether again.
"With the stigma that's on this fund, I can't believe there would be much interest in jumping back in with John Meriwether with a big chunk of money," Lonsdorf said. "He may be able to attract some new money because he has a reputation for making money. But I would assume that [the original investors] ... will be very happy to get their original investment back and go home."