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| Author: | Stonham, P. |
| Title: | To Close to the Hedge: The Case of Long Term Capital Manage- ment LP. Part two: Near-collapse and Rescue |
| Journal: | European Management Journal
1999 : VOL. 17:4, p. 382-390 |
| Index terms: | INVESTORS INVESTMENT TRUSTS INVESTMENT ANALYSIS CAPITAL INVESTMENT |
| Language: | eng |
| Abstract: | Part two of this case study of the US Hedge fund, Long Term Capital Management (LTCM), deals with the detail of the fund's September 1998 nearcollapse and rescue after it had lost $2.1 billion of its investors money (44 per cent of ca- pital). Following a profile of LTCM, the Case looks at the fundamental reasons why LTCM fell into crisis, and the ex- tent of actual and potential damage to the fund's investors and creditors is examined. Much of the blame for the rapid loss in value by LTCM lay at the door of extreme leverage, and a number of arbitrage and other trading operations are looked at in detail to see how LTCM's losses became magnified with leverage. In September 1998, the Federal Reserve Bank of New York orchestrated a takeover of LTCM by 15 commercial and in- vestment banks to the tune of $3.5 billion. |
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