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What Was Long-Term Capital Management (LTCM)?

Long-Term Capital Management (LTCM) was a large hedge fund, led by Nobel Prize-winning economists and renowned Wall Street traders, that blew up in 1998, forcing the U.S. government to intervene to prevent financial markets from collapsing.

KEY TAKEAWAYS

Long-Term Capital Management (LTCM) was a large hedge fund led by Nobel Prize-winning economists and renowned Wall Street traders.

LTCM was profitable in its heyday in the 1990s, drawing over $1 billion of investor capital by promising that its arbitrage strategy would yield huge returns for investors.

LTCM’s highly leveraged trading strategies failed to pan out and, with losses mounting due to Russia's debt default, the U.S. government had to step in and arrange a bailout to stave off global financial contagion.

Ultimately, a loan fund, comprised of a consortium of Wall Street banks, was created to bail out LTCM in September 1998, enabling it to liquidate in an orderly manner.