Which 1998 hedge fund collapse intensified the global market turmoil after Russia’s debt default?

The 1998 hedge fund collapse that intensified global market turmoil after Russia’s debt default was Long-Term Capital Management.

Long-Term Capital Management, or LTCM, was founded in 1994 by traders and academics, including Nobel Prize-winning economists Robert Merton and Myron Scholes. It used highly leveraged mathematical trading strategies designed to profit from small pricing differences between related securities.

Russia’s August 1998 debt default and ruble crisis caused investors to flee risky assets. Relationships that LTCM’s models expected to converge instead moved sharply apart, producing enormous losses. Because the fund had positions with many major financial institutions, its disorderly failure was considered a threat to the wider system.

The Federal Reserve Bank of New York helped organize a private-sector rescue in September 1998. The government did not directly bail out LTCM, but 14 banks and brokerage firms provided about $3.6 billion to recapitalize it. The episode became a warning about leverage, interconnectedness, and model risk.