Long-Term Capital Management, Lp. (a)

2582 Words Apr 9th, 2012 11 Pages
Long-Term Capital Management, LP. (A)
(HBS Case No. 9-200-007)

Long-Term Capital Management, LP. (A)

Hedge Funds

According to the book, “Financial Markets and Institutions” by Anthony Saunders, hedge funds are financial intermediaries that pool the financial resources of individuals and companies and invest those resources in (diversified portfolios of assets. In other words, they are a type of investment pool that solicit funds from (wealthy) individuals and other investors (e.g., commercial banks) and invest these funds on their behalf.

They are also similar to mutual funds in that they are pooled investment vehicles that accept investors’ money and generally invest it on a collective basis. However, hedge funds are not
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Name of Fund | Country | Total Assets (Billions) | Goldman Sachs Hedge Funds Strategies | U.S | $29.0 | D.E Shaw & Company | U.S | 26.0 | Union Bancaire Privee | Switzerland | 20.8 | HSBC Private Bank | Switzerland | 20.2 | Och-Ziff | U.S | 19.8 | Permal Asset Management | U.S | 18.8 | Credit Agricole Alternative Investment Products | France | 18.5 | Societe Generale | France | 15.9 | Quellos Capital Management | U.S | 15.0 | Ivy Asset Management | U.S | 14.9 |
Source: International Investor Magazine, December 2006. www.institutionalinvestor.com

To understand LTCM’s case better, we will discuss the case more thoroughly throughout the next few pages.

Long-Term Capital Portfolio, L.P (LTCM)

Mr. John Meriwether who had established fame as a pioneer of fixed- income arbitrage at Salomon Brothers in the early 1980s, and for having built Salomon’s profitable Fixed-Income Arbitrage group headed LTCM. Before leaving in 1991, John Meriwether had been Vice Chairman of Salomon Brothers in charge of the firm’s worldwide Fixed Income Trading, Fixed-Income Arbitrage and Foreign Exchange businesses. Several of LTCM’s founding principals had, years earlier, been recruited to Salomon’s Fixed-Income Arbitrage group by Meriwether, and had held senior positions at Salomon. In 1994, Salomon Inc. disclosed that its proprietary trading activities had generated more