2 ms·
Not true. LTCM had some of the most restrictive covenants among similar funds. Minimum lockup of at least 2 years, and redemption notice of 3 or 6 months (hey i
by listenallyall 7y ago
Not true. LTCM had some of the most restrictive covenants among similar funds. Minimum lockup of at least 2 years, and redemption notice of 3 or 6 months (hey its been 20 years) - in other words, if you wanted to redeem, you had to give multiple month notice. The investors had no way of forcing LTCM to liquidate any holdings in a panic, in fact the covenants were to protect against that exact scenario, so the firm could ride out their positions.
Counterparties, on the other hand, very different story, if they didn't force LTCM'S hand, they would be stuck with an empty bag.
You're correct that many of LTCM trades did eventually work out positively. But when you're driving a car at 200 mph, a mundane pothole is deadly. When your hedge fund levered 30x, a temporary liquidity crisis is also fatal.