Which hedge fund’s 1998 collapse prompted a Federal Reserve-organized rescue during the Russian financial crisis?

Long-Term Capital Management’s 1998 collapse prompted a Federal Reserve-organized rescue during the Russian financial crisis.

Long-Term Capital Management, or LTCM, was a highly leveraged hedge fund founded in 1994. Its partners included prominent traders and economists, including Nobel laureates Myron Scholes and Robert Merton. The fund used complex strategies that assumed price relationships would converge.

Those assumptions failed after Russia’s August 1998 default and devaluation triggered extreme market volatility. LTCM suffered enormous losses and faced the possibility that a disorderly failure could affect its many counterparties.

The Federal Reserve Bank of New York did not use public money to bail out LTCM. Instead, it organized a private rescue in which major banks and investment firms provided capital and took control of the fund. The episode became a major example of leverage and systemic risk, although it was not itself a conventional stock-market crash.