Reuters- Hedge funds may now pose the biggest risk of a crisis since 1998, when the implosion of Long-Term Capital Management threatened the global financial system, the New York Federal Reserve saidon Wednesday.<\/p>\n
The statement represented the bank’s sternest warning to date over the possible fate of the $1.4 trillion industry.<\/p>\n
“Recent high correlations among hedge fund returns could suggest concentrations of risk comparable to those preceding the hedge fund crisis of 1998,” according to a paper written by Tobias Adrian, capital markets economist at the central bank.<\/p>\n
Back in 1998, the New York Fed helped bring together Wall Street tycoons who eventually cobbled together enough funds for an unprecedented $3.6 billion bailout.<\/p>\n
The LTCM crisis was all the more shocking to investors because of the individuals involved, regarded highly for their market savvy and mathematical prowess.<\/p>\n
But with the crisis averted, the hedge fund industry bounced back with a vengeance, increasingly rapidly over the last decade in both size and scope to an estimated $1.4 trillion.<\/p>\n