The investment partnership Long-Term Capital Management was set up in 1993 by John Meriwether, previously a successful bond trader and then senior manager at the US investment bank, Salomon Brothers. Meriwether recruited to LTCM, from Salomon and elsewhere, an impressive team of experienced traders and specialists in mathematical finance. Much of its trading was with leading banks, and it largely avoided risky 'emerging markets', preferring well-established ones such as those in government bonds of the leading industrial nations. The fund avoided speculation based on hunches. It built carefully researched mathematical models of the markets in which it traded, and invested in a way designed to achieve insulation from market movements, seeking small pricing anomalies from which it could profit. Although it had to borrow large amounts and commit money on a large scale to make an adequate return from these anomalies, LTCM scrupulously measured and controlled the risks it was taking.

LRB 13 April 2000 | PDF Download