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Long-term Capital Management (LTCM)
Term category: Companies
In 10 words or less: A hedge fund that made news for nearly destroying the financial markets.

Definition: A hedge fund that used a risk arbitrage strategy to make very large, leveraged bets on credit spreads.

Advice: LTCM was a very high-performing hedge fund for a number of years.  The fund created theoretically "riskless" profits but its incredible leverage and temporary market forces destroyed the hedge fund and lots its investors billions of dollars.  Because of the extreme leverage, the Federal Reserve and Wall Street investment banks had to bail the fund out in order to prevent widespread financial havoc.

If you want to read a fantastic story about LTCM, we recommend you check out When Genius Failed.

 

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