Which 1998 fund’s collapse helped trigger a global market panic?

The collapse of Long-Term Capital Management helped trigger a global market panic in 1998.

Long-Term Capital Management, or LTCM, was a highly leveraged hedge fund founded in 1994. Its partners included prominent traders and economists, including Nobel Prize-winning economists Robert Merton and Myron Scholes. The fund used complex arbitrage strategies that depended on relatively stable relationships between asset prices.

Those relationships broke down after the Russian government defaulted on domestic ruble debt in August 1998. Investors rushed toward safer assets, causing prices and spreads to move in ways LTCM’s models had not anticipated. Because the fund had borrowed heavily, relatively small price changes produced enormous losses.

The Federal Reserve Bank of New York helped organize a private-sector recapitalization in September 1998. The central bank did not formally rescue LTCM with taxpayer funds, but officials feared an uncontrolled failure could destabilize already nervous markets.