Pedestrians walk past the headquarters the London office of JWM Partners, founded after the collapse of Long-Term Capital Management, in London, U.K., on Wednesday, July 8, 2009.
As one of the first big hedge-fund disasters, the failure of Long-Term Capital Management brought unprecedented attention to a previously secretive and little-understood corner of the financial industry. The Greenwich, Conn., based firm was founded in 1994 by John Meriwether and met with great success, averaging 40% gains over its first few years. However its main fund, Long-Term Capital Portfolio L.P., cratered following the Russian financial crisis of 1998 — losing LTCM some $4.6 billion in just four months. As investors fled and the company’s debts mounted, other financial institutions offered to bail out the firm under the supervision of the Federal Reserve, for fear that its total collapse would lead to catastrophic losses throughout the financial markets. The fund was liquidated in early 2000.