Long-Term Capital Management

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Long-Term Capital Management

A defunct hedge fund, established in 1993, that, at its height, held positions worth more than $1 trillion. Its investment strategy was to take advantage of arbitrage opportunities in bonds and other fixed-income securities; profits on individual transactions were small, so LTCM was required to borrow massive amounts of money in order to operate. It was at first enormously successful, with a 40% annualized return after fees. However, when Russia defaulted on its government bonds in 1998, there was a steep drop in bond prices, endangering LTCM's positions because of its high leverage. Because LTCM controlled upwards of 5% of the bond market at the time, defaulting on its loans would have caused global financial panic. It was eventually bailed out by a consortium of organizations under the supervision of the Federal Reserve.
References in periodicals archive ?
Importantly, while LTCM was found to be atypical among hedge fund counterparties, shortcomings in the risk management of hedge fund counterparty exposures appeared to extend beyond this one fund.
For a year or two before the crisis, the liabilities of financial intermediaries had increased substantially relative to the liabilities of the nonfinancial sector, suggesting that others besides LTCM had also taken on more debt and were similarly vulnerable to price volatility and liquidity shocks.
But there's as yet no individual fund problem that is threatening systemic risk in its own right like LTCM did.
In contrast to LTCM, the corporate culture at Lehman Brothers less resembled a cutting-edge engineering firm experiencing an unforeseen design failure than it did Zimbardo's Stanford experiment.
While ad hoc solutions, as in the case of LTCM, have avoided disasters in the past, the stress associated with such events suggests the need for ex ante well-established solutions.
The CEOs, some of whom may have been conflicted as they had personally invested significant sums in LTCM, all agreed to contribute their independent stockholders' capital.
In it, he marvels over the ex-governor's inability to learn the lessons of LTCM (given Mr.
That lead LTCM to ignore a low-probability risk that these patterns could change--a change subsequently caused by a default on Russian government bonds.
Para poner un ejemplo, la crisis global de 1998, con la llamada crisis rusa y la quiebra del LTCM, nuestro pais llego a una recesion que se extendio hasta el ano 2002.
In 1998, LTCM sold a large number of options, betting that the markets would go through a period of stability because their computer models said they would.
Rumors began to circulate about LTCM collapsing, (121) which had
439) After the collapse of LTCM, however, many dealer-banks required full collateralization of hedge fund transactions.