LONG-TERM CAPITAL MANAGEMENT (A) : RISE AND FALL Research Associate David Hoyt prepared this case under the supervision of Professor Margaret Neale, Stanford Graduate School of Business, and Professor Thomas Z. Lys, Kellogg Graduate School of Management, Northwestern University as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Copyright © 2001 by the Board of Trustees of the Leland Stanford Junior University. All rights reserved. To order copies or request permission to reproduce materials, e-mail the Case Writing Office at: email@example.com or write: Case Writing Office, Stanford Graduate School of Business, 518 Memorial Way, Stanford University, Stanford, CA 94305-5015. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means –– electronic, mechanical, photocopying, recording, or otherwise –– without the permission of the Stanford Graduate School of Business. Version: (A) 07/18/01 GRADUATE SCHOOL OF BUSINESS STANFORD UNIVERSITY CASE NUMBER: OB-36 JULY 2001 LONG-TERM CAPITAL MANAGEMENT (A): RISE AND FALL In 1993, John Meriwether gathered together the smartest group of bond arbitrage experts ever assembled.1 The group included former professors and Ph.D.s, two of whom were future Nobel Laureates in economics. Some of the group had honed their skills and their computer models under Meriwether’s leadership at Salomon Brothers, where their activities had generated a substantial amount of Salomon’s profits. Now, they assembled to raise a private hedge fund that would utilize this brainpower, as well as extensive computer databases, to isolate risk, minimize the chance of loss, generate exceptional profits for their investors, and amass huge wealth for themselves. They raised $1.25 billion in capital from investors and assembled a network of banks ready to provide additional financing at very favorable terms. From 1994, when they began trading,... LTCM’s propensity towards risk increased as the situation become more volatile. How do the concepts/theories of Organization Behavior and Design (e.g. theories of motivation, decision making, team processes, leadership, and power) predict LTCM’s increased propensity toward risk?