LTCM and Archegos

involves analyzing cross-industry coordination issues highlighted by the collapse of LTCM (Long-Term Capital Management) and Archegos Capital Management. Specifically, you need to: Describe the similarities between LTCM and Archegos, focusing on the factors that led to their collapse. Consider elements like leverage, risk management failures, and the impact of these failures on the financial market. Identify a key difference between the two funds. This could be in terms of their operational methods, regulatory environment, or other significant factors. Evaluate regulatory responses: Research whether regulators implemented new rules or initiatives in response to these events to address similar risks in the future. Long-Term Capital Management (LTCM): Background: LTCM was a hedge fund known for using complex financial models and extremely high leverage to conduct arbitrage trades. Collapse: In 1998, unexpected market volatility, triggered by the Russian debt crisis, caused significant losses for LTCM. Due to its high leverage and widespread connections with other financial institutions, LTCM's failure posed a systemic risk to the financial system. Outcome: The Federal Reserve organized a bailout by coordinating with major banks to prevent broader financial instability. Although LTCM’s actions weren’t illegal, its failure exposed regulatory gaps regarding hedge fund leverage and risk management. Archegos Capital Management: Background: Archegos was a family office led by Bill Hwang that used total return swaps and high leverage to take large, concentrated positions in a few companies. Collapse: When the stock prices of these companies dropped, Archegos faced massive margin calls and couldn’t meet them, leading to forced liquidations. This caused substantial losses not only for Archegos but also for banks heavily exposed to its positions, such as Credit Suisse and Nomura. Outcome: Although not explicitly illegal, Archegos’s use of leverage and lack of transparency exploited regulatory loopholes, prompting regulators to reassess oversight for derivatives and family offices. ****************************** My professor prefers to see more personal reflection and thinking on those events in this assignments rather than simple descriptions of events. If possible, ples incorporate some content from our class PPTs