Which hedge fund collapse followed the 1998 Russian financial crisis and required a Federal Reserve-organized rescue?

Long-Term Capital Management collapsed after the 1998 Russian financial crisis and received a Federal Reserve-organized rescue.

Long-Term Capital Management, or 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 Merton. The fund made large bets that price differences between related securities would converge.

Russia’s August 1998 default and ruble devaluation produced an unexpected flight to quality. Instead of narrowing, many market spreads widened dramatically, causing LTCM’s positions to lose value. By September, the Federal Reserve Bank of New York helped arrange a private-sector recapitalization by major financial institutions to reduce the risk of disorderly liquidation.

The Fed did not directly bail out LTCM with public funds. The episode became a major example of how leverage and crowded trading strategies can create systemic risk, even when a fund’s individual positions appear diversified.