Another LTCM In The Cards? Not Quite, Says N.Y. Fed

May 3 2007 | 2:00pm ET

Hedge funds may be on the brink of collapse, according to the Federal Reserve Bank of New York. Or, they might not be.

“Recent high correlations among hedge fund returns could suggest concentrations of risk comparable to those preceding the hedge fund crisis of 1998,” the year Long-Term Capital Management blew up, writes capital markets economist Tobias Adrian in a report issued Wednesday. But he quickly noted that the metrics pointing in that direction could be misleading.

Adrian noted that low volatility is making things look more precarious than they are. “The unusually high correlation among hedge funds in the current environment is therefore attributable primarily to low hedge fund volatility,” he writes, adding that an LTCM-style meltdown is unlikely.

The New York Fed is unlikely to take the prospect of another LTCM lightly: It led the $3.6 billion bail-out of the notorious hedge fund in 1998.


In Depth

Why Ponzi Schemes Work: An In-Depth Look At The Allen Stanford Fraud

Dec 21 2014 | 10:30am ET

Texan Allen Stanford first appeared on the radars of financial regulators in 1997...

Lifestyle

Cooper-Hohn Won't Contest Divorce Settlement

Dec 18 2014 | 9:51am ET

The ex-wife of hedge fund billionaire Christopher Hohn will not contest a divorce...

Guest Contributor

Controlling With Confidence: A ‘How-To’ For Hedge Fund Managers

Dec 22 2014 | 11:52am ET

Hedge funds are increasingly turning to third party services to help with operations...

 

Sponsored Content

Editor's Note

    Guidelines for Guest Articles

    Oct 22 2014 | 9:46am ET

    We are always looking for guest articles from hedge fund managers and buy-side firms.

    If you are interested in submitting a contributed piece for possible publication on FINalternatives, please take a look at the specs. Read more…

 

Futures Magazine

December 2014 Cover

Futures 2014 person of the year

Jeff Sprecher was simply looking for a platform to trade energies when launching ICE 14 years ago but it has grown to reach the pinnacle of both the listed futures and equities world.

The Alpha Pages

TAP July/August 2014 Cover

The Alpha Pages Interview: Senator Rand Paul

Senator Paul sat down in the debut series of the Alpha Pages Interview to discuss the broken tax code, regulation surrounding Bitcoin, and his plans for the 2016 Presidential election.