Which company’s failure marked the 1998 collapse of the hedge fund Long-Term Capital Management?

Long-Term Capital Management’s failure marked the 1998 collapse of the hedge fund Long-Term Capital Management.

Long-Term Capital Management, usually abbreviated LTCM, was founded in 1994 by John Meriwether and included prominent financial economists such as Myron Scholes and Robert Merton. The fund used highly leveraged trading strategies that depended on normally small price differences converging.

Russia’s 1998 default and devaluation disrupted those assumptions. Investors rushed toward safer assets, correlations changed, and LTCM suffered losses that threatened financial counterparties. The Federal Reserve Bank of New York coordinated a private-sector rescue in September 1998, with major banks contributing capital, rather than directly bailing out the fund with public money.

The episode became a landmark example of systemic risk created by leverage and interconnected financial institutions. It is sometimes described as a stock-market crash, but LTCM’s crisis was primarily a hedge-fund and credit-market emergency that affected global asset prices.