Long-term Capital was a hedge fund management firm established in 1994 by John W. Meriwether and based in Greenwich Connecticut. Arguably, the company had accumulated fund close to $5 billion at the time of collapse in the late 1990s. The company seemed too stable to fall. The question is, did poor leadership and dealings of the company’s management lead to its collapse? There are various reasons to explain the fall of this giant company. After inception, the company was in the hands of Meriwether together with Laureate winners Scholes and Merton. Apparently, Meriwether headed Salmon Brothers bond trading desk until the few years before incepting Long-term Capital firm. Therefore, the company might have lacked in good leadership.

Long-term capital utilised absolute return strategies in a complex mathematical model. This enabled the company take advantage of fixed income arbitrage from US, Japanese, and European government bonds. Usually, government bonds pay a fixed amount at a specified time in future, meaning that they are safer than other stocks. Two years before the collapse of this firm, the firm had entered into risky ventures that left the firms accounts off-balance. In addition, the firm lost billions of dollars that affecting its operations. Salmon Brothers withdrew their huge investment in July, adding to the losses already incurred. Russian government bonds defaulted in the September and august 1998, which was the main reason for the collapse of Long-Term capital. This resulted to panic by Japanese and European investors that caused them to sell off their shares and buy US treasury bonds. An offer by Goldman Sachs, AIG, and Berkshire Hathway proved too low for Long-term capital to consider in the one hour given. Therefore, Long-term Capital landed under the hands of liquidators, under the supervision of Federal Reserve.