Long Term Capital Management (A), Rise and Fall

Long Term Capital Management (A), Rise and Fall

By
David Hoyt, Margaret Neale
2001|Case No.OB36A

In 1993, John Meriwether, former head of arbitrage and bond trading at Salomon Brothers, put together the smartest group of bond arbitrage experts ever assembled. The group included a number of professors, two of whom were future Nobel laureates in Economics. The group raised a private hedge fund (Long Term Capital Management) of more than $1 billion. By mid-1998, the fund had more than $100 billion in assets. Then, in five weeks, it collapsed. The partners lost their entire investments, and some went into personal debt. Case A describes the fund’s rise and fall, with an emphasis on decision making and interpersonal dynamics within the firm. Case B describes the negotiations leading to the rescue of the fund by a consortium of banks. The case is based on Roger Lowenstein’s book “When Genius Failed,” and was developed with his permission.

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