Long-Term Capital Management

Paper Summary:

This paper explains what long-term capital management, or hedge funds, are and how they operate. It gives the background information of long-term capital management (LTCM) and its distinguishing features. The paper continues with a discussion on the collapse of LTCM, including the causes and consequences. There is also a discussion on the future of LTCMs and hedge funds and a brief overview of the reforms needed to regulate hedge funds.

From the Paper:

"Hedge funds are large unregulated private investment pools for wealthy institutions and investors. Hedge funds are not limited by the restrictions put on other types of investment vehicles with regard to their leverage and the composition of their portfolio. Hedge funds are allowed to take short positions in securities and are also allowed to concentrate their investments in a particular firm, industry or sector. The launch of Long-Term Capital Management (LTCM) represented one of the first hedge funds in operation and, unfortunately, the first fall out. Ultimately, the arrogance of LTCM's management in believing that they could actually hedge away all the risk precipitated the fund's demise."

More papers on Long-Term Capital Management:

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• Research Proposal # 105998 : "Working Capital Strategies: A Research Proposal"

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