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Thursday, December 24, 1998 Published at 11:47 GMT

Business: The Economy

LTCM partners set for Christmas bonus

The US Federal Reserve bank prompted LTCM's rescue

The partners of the stricken hedge fund that prompted a $3.75bn bail out after sending shockwaves through the world's financial system earlier this year are reported to be due for a $50m Christmas bonus.

Amid the crisis on world financial markets in September, the Long Term Capital Management (LTCM) hedge fund revealed it had lost $2.3bn after its highly-speculatory investment plays went badly wrong and was on the brink of bankruptcy.

Now fund founder John Meriwether and fellow partners and Nobel laureates Myron Scholes and Robert Merton stand to collect performance fees based on the fund's year-end value, according to the Wall Street Journal (WSJ).

[ image: John Meriwether, LTCM founder, may have a bumper Christmas]
John Meriwether, LTCM founder, may have a bumper Christmas
The fund's assets have increased by $400m since 15 major banks and broking houses orchestrated the rescue and under the terms of the deal, LTCM's partners are entitled to 15% of the profits - around $50m.

However, any payout to the partners would have to be approved by the rescue consortium's oversight committee composed of five bank representatives, the fund told the WSJ.

Global jitters

News of fund's plight sent shivers through the world's already-nervous financial markets as bankers and investors feared LTCM might just be the first casualty of the markets' mid-year plunges.

[ image: Geroge Soros, high-profile hedger]
Geroge Soros, high-profile hedger
Financial heavyweights around the world - including US Federal Reserve bank chairman Alan Greenspan - were so concerned about the possible repercussions should LTCM collapse they called an emergency meeting to arrange the $3.75m rescue funding within days.

US Treasury Secretary Robert Rubin was forced to make a hasty breakfast television appearance to reassure the markets.

Leading investment names such as the UK's Barclays Bank, France's Societie Generale and US giants Goldman Sachs, Morgan Stanley and Merrill Lynch were part of the rescue consortium.

Hedge risk

LTCM and other hedge funds play a high-risk game betting millions trying to anticipate future movements in the world financial markets using options and futures investments.

The infamous speculator George Soros and his Quantum fund are the best known names in the hedge fund industry.

If they get it right they stand to reap huge windfall gains - but if they get it wrong, the losses can be equally large.

LTCM lost out when its investments in Russian markets were hit by the rapid devaluation of the rouble in August which saw the currency lose 70% of its value.

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