![]() However, sometimes the price of the stock in one market may dip below the other. As both stocks represent the same company, you’d expect them to be the same price. To demonstrate this, imagine that one company sells different stock in two markets. Like all other hedge funds, LTCM managed their investments with a strategy called arbitrage, whereby hedge fund managers purchase or sell financial products in the hope or knowledge that their price will change in their favor in the near future. ![]() This lack of regulation makes hedge funds a ripe environment for investment in riskier financial products, such as derivatives. Unlike their cousins, mutual funds, which manage the investments of a larger, more economically diverse group of investors, hedge funds are subject to very little regulation, meaning that there are virtually no limits to the size of the fund or where it can be invested. Hedge funds manage the pooled investments of small groups of mostly wealthy investors. LTCM was a hedge fund founded in 1994 by trader John Meriwether. LTCM had an important role to play in both. The 1997 Asian financial crisis or the 1998 Russian default, however, are two events that are probably much more familiar to you, as they brought the financial world to the brink of collapse. It’s a fair bet that you’ve probably never heard of Long-Term Capital Management (LTCM), a long defunct fund management company. ![]()
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