Which hedge fund’s near-collapse became a major part of the 1998 global market crisis?

Long-Term Capital Management’s near-collapse became a major part of the 1998 global market crisis.

Long-Term Capital Management, usually called LTCM, was a highly leveraged hedge fund founded in 1994. Its partners included prominent traders and Nobel Prize-winning economists Myron Scholes and Robert C. Merton. The fund used mathematical models and borrowed heavily to exploit small price differences between related securities.

The Russian government’s August 1998 debt default and ruble devaluation disrupted those relationships. Investors rushed toward safer assets, causing unusually large price movements and losses for LTCM. Because many banks and dealers were counterparties, the Federal Reserve Bank of New York helped organize a private-sector recapitalization in September 1998.

LTCM did not simply “cause” the entire 1998 crisis. The Russian default, emerging-market stress, and global flight to quality were broader forces. The episode became a classic warning about leverage, crowded trades, and risks hidden by models that assume normal market conditions.