Which hedge fund’s collapse in 1998 became a major episode in global financial-market turmoil?

Long-Term Capital Management’s collapse in 1998 became a major episode in global financial-market turmoil.

Long-Term Capital Management, or LTCM, was a highly leveraged hedge fund founded in 1994. Its partners included prominent traders and two Nobel Prize-winning economists, Robert Merton and Myron Scholes. The fund used complex mathematical models and large positions in financial markets.

The 1997 Asian crisis and the 1998 Russian financial crisis disrupted relationships that LTCM expected to converge. Investors moved toward safer assets, spreads widened, and the fund suffered severe losses. Its leverage made the losses dangerous for counterparties and the broader financial system.

The Federal Reserve Bank of New York helped coordinate a private-sector rescue in September 1998. The US government did not directly bail out the fund. The episode became a classic warning about leverage, crowded trades, model risk, and institutions considered too interconnected to fail.