Which hedge fund’s collapse helped trigger the 1998 global market turmoil?

Long-Term Capital Management helped trigger 1998 global market turmoil when its highly leveraged positions began to fail.

LTCM was a hedge fund founded in 1994 by John Meriwether. Its partners included prominent traders and financial economists, including Nobel Prize winners Myron Scholes and Robert C. Merton. The fund used borrowed money to pursue convergence trades based on small expected price differences.

The 1998 Russian financial crisis caused markets to move in ways LTCM’s models had not anticipated. Losses mounted, investors withdrew, and the fund’s leverage threatened disorderly sales across global markets. In September 1998, the Federal Reserve Bank of New York organized a private-sector recapitalization involving major banks; the government did not directly rescue the fund.

LTCM is often described as a bank, but it was a hedge fund. Its episode also differs from the 2008 failure of Lehman Brothers, which was an investment bank and occurred a decade later.