Long Term Capital Management
Long Term Capital Management, this secretive, best-of-breed hedge fund had a spectacular rise and striking collapse in 1998 that shook the financial markets.
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Expanded Definition
Long Term Capital Management opened for business in 1994 by raising $1.25 billion in start-up capital. The well regarded dream team of financial and mathematical brain power had much success early on. Some of the leaders included John Meriweather and Nobel Laureates Robert C. Merton and Myron S. Scholes. They developed sophisticated computer models to take advantage of artibrage trading opportunities. The narrow spreads they sought required lots of capital to earn outsized returns. They planned to apply liberal amounts of leverage to earn high returns. They planned to use leverage of 20 to 30 to one but ultimately went as high as 55 to one.
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