Which hedge fund’s near-collapse intensified the 1998 global financial crisis and shook stock markets?

Long-Term Capital Management’s near-collapse intensified the 1998 global financial crisis and shook stock markets.

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

The Russian financial crisis of August 1998 produced extreme market movements and caused many of LTCM’s positions to lose value. Because the fund had large and complex exposures to banks and other financial institutions, an uncontrolled failure might have spread disruption through global markets.

The Federal Reserve Bank of New York organized a private-sector rescue in September 1998. Fourteen financial institutions provided capital, while the Federal Reserve did not directly contribute bailout funds. LTCM’s episode became a frequently cited warning about leverage, interconnectedness, and the limits of risk models.