Which American investment fund’s collapse in 1998 helped trigger the global turmoil surrounding the Russian debt crisis?

Long-Term Capital Management’s collapse in 1998 helped trigger global market turmoil surrounding the Russian debt crisis.

Long-Term Capital Management, or LTCM, was a highly leveraged hedge fund founded in 1994. Its partners included prominent finance academics and traders, and it used complex strategies involving convergence trades and derivatives. Those positions depended on normally stable relationships between asset prices.

Russia’s August 1998 debt default and ruble devaluation produced an extraordinary flight to safer assets. Instead of converging, many markets moved apart, causing severe losses for LTCM. The fund’s positions were so large and interconnected that its disorderly failure threatened broader financial stability.

The Federal Reserve Bank of New York coordinated a private-sector rescue in September 1998. The government did not directly provide the bailout money. LTCM was not the Russian crisis itself; it was a separate institution whose distress magnified fears about contagion and leverage.