Which 1998 investment fund’s collapse intensified market fears after Russia defaulted on its debt?

The collapse of Long-Term Capital Management intensified market fears after Russia defaulted on its debt in 1998.

Long-Term Capital Management, usually called LTCM, was a highly leveraged hedge fund founded in 1994. Its partners included prominent traders and economists, including Nobel Prize-winning economists Myron Scholes and Robert C. Merton. The fund used complex strategies that depended on small price differences converging.

Russia’s August 1998 default and ruble devaluation produced a global flight from risk. Instead of converging, many supposedly related prices moved apart, causing LTCM’s positions to generate huge losses. The Federal Reserve Bank of New York organized a private-sector recapitalization involving major financial institutions, rather than a direct government bailout of the fund. The episode alarmed regulators because LTCM’s enormous leverage and trading relationships could have transmitted losses through the financial system. It is often confused with the failures of Bear Stearns and Lehman Brothers, which occurred a decade later during the 2008 financial crisis.