CHAPTER 15

Hedge Fund Case Study: Long Term Capital Management (LTCM)

The yin and the yang of hedge fund experience is revealed in the short, dramatic life of Long Term Capital Management. In its five brief years, it reached the apex of hedge fund success—spectacular returns, clamorous investors, and extremes of arrogance and conspicuous consumption. When the end came suddenly, the corpse was preserved on life support temporarily, to harvest its organs. But Long Term Capital Management’s (LTCM) true believers—its partners and employees, who had invested their life savings in the fund—were mostly wiped out.

This story illustrates the life cycle of a very successful, then spectacularly doomed, hedge fund. It is drawn from several sources, particularly ...

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