Finance & Fury Podcast

Welcome to Finance and Fury, the Furious Friday edition, where we will continue to look at some derivative disasters. Last week – went through some of the basics – and a few Australian specific examples - In todays episode – want to look at the Long Term Capital Management crash in the late 1990s Similar to some of the cases last week – wouldn’t be surprised if you haven’t heard of this – but it had the potential to spark a larger crisis – The story is very similar to the GFC- almost like a mini-or pre GFC – and an event that likely created the moral hazard that lead to the GFC - so what happened Long Term Capital Management (LTCM) – they were a major US hedge fund – used absolute return trading strategies Now - hedge funds are normally defined as absolute returns funds – as the name sort of indicates – they aim to get absolute (or positive) returns over a rolling period regardless of market conditions – So a traditional asset managers or long only fund tried to outperform a benchmark or index year on year