Which hedge fund’s 1998 collapse led to a major Federal Reserve-facilitated rescue?

Long-Term Capital Management’s 1998 collapse led to a major Federal Reserve-facilitated rescue.

Long-Term Capital Management, or LTCM, was a highly leveraged hedge fund founded in 1994. Its partners included prominent traders and Nobel Prize-winning economists, and it used mathematical models to pursue small price differences across markets.

The Russian financial crisis in August 1998 produced unusually large market moves. LTCM suffered heavy losses, and its enormous positions raised concerns that a disorderly failure could disrupt banks and markets around the world. The Federal Reserve Bank of New York helped organize a private-sector recapitalization by major financial institutions.

The Federal Reserve did not provide taxpayer money or directly bail out the fund. The participating banks supplied the rescue funds and took control of LTCM’s portfolio. The episode became a famous warning about leverage and interconnected financial institutions.