Which hedge fund’s near-collapse led to a Federal Reserve-arranged private rescue in September 1998?

Long-Term Capital Management’s near-collapse led to a Federal Reserve-arranged private rescue in September 1998.

Long-Term Capital Management, commonly called LTCM, was a highly leveraged hedge fund founded in 1994. Its partners included prominent traders and Nobel Prize-winning economists, and the fund used mathematical models to pursue price differences among related securities.

The Russian financial crisis of 1998 disrupted those relationships and caused severe losses. Because LTCM had extensive positions and dealings with major financial institutions, regulators feared that a disorderly failure could spread instability through global markets.

The Federal Reserve Bank of New York helped organize a private-sector rescue in which fourteen banks and investment firms contributed capital. The Federal Reserve did not directly bail out the fund with public money. LTCM was later wound down, and its episode became a major warning about leverage and interconnected financial markets.