Which hedge fund’s 1998 collapse threatened the stability of global financial markets?

Long-Term Capital Management’s 1998 collapse threatened the stability of global financial markets.

Long-Term Capital Management, usually called LTCM, was a highly leveraged hedge fund founded in 1994. Its partners included renowned traders and economists, including Nobel Prize-winning economists Robert Merton and Myron Scholes.

The fund used mathematical models and borrowed heavily to exploit small price differences among securities. Those relationships broke down during the 1998 Russian financial crisis, when investors rushed toward safer assets and normally related markets moved in unexpected ways.

LTCM suffered enormous losses and faced the possibility of disorderly failure. The Federal Reserve Bank of New York helped arrange a private-sector rescue in September 1998, with major banks contributing capital. The episode became a classic warning about leverage, crowded trades, and systemic risk, although the Federal Reserve did not directly provide the rescue money.