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

Malik: The Science of Deal Sourcing 201

Aug 27 2015 | 5:35pm ET

Deal sourcing is understandably a hot topic among private equity firms because it...

Lifestyle

Rolling Art Advisors Marketing Collectible Car Fund As Uncorrelated Alternative

Aug 27 2015 | 6:47pm ET

A new fund is trying to provide investors with greater access to an emerging asset...

Guest Contributor

FATCA for Hedge Funds: Eight Common Pitfalls

Sep 1 2015 | 10:56am ET

FATCA is now a way of life for those in the financial industry and most professionals...

 

Editor's Note