Which 1998 hedge fund collapse forced a Federal Reserve-coordinated rescue after losses threatened financial-market stability?

Long-Term Capital Management was the hedge fund whose 1998 collapse prompted a Federal Reserve-coordinated private-sector rescue.

LTCM used highly leveraged trading strategies, including relative-value and convergence trades. Its early returns were impressive, but the Russian financial crisis and a global flight to safety caused many supposedly small price differences to widen simultaneously. Because the fund had borrowed heavily and dealt with many major financial institutions, its disorderly failure could have spread losses through the broader market.

The Federal Reserve Bank of New York arranged meetings among LTCM’s creditors, but the rescue was funded by private banks rather than by a direct government bailout. A consortium took control of the fund’s portfolio and provided capital to wind it down. LTCM’s episode is often mentioned alongside the 1998 Russian default, but they were separate events: Russia defaulted and devalued its currency, while LTCM was a private hedge fund whose leveraged positions became unsustainable.