Long Term Capital Management and Hedge Fund Impact
September 29, 1998 – New York, NY – Charles Gradante, Co - Founder of Hennessee Group LLC, interviews on CNNfn's "Street Sweep" with Terry Keenan.
Noteworthy highlights from this particular interview include Hennessee Group Managing Principal, Charles Gradante, discussing the collapse of Long Term Capital Management. Gradante points out the LTCM presents two issues: firstly, LTCM's strategy was flawed with respect to managing "fat tail" risk that reulted from the Russian debacle of 1998. Secondly, banks and broker dealers lent too much capital to LTCM without understanding their balance sheet. Gradante suggests the use of a "star system" for lending. He states that the retail investor need not be concerned about LTCM. There are potential leverage issues in bond arbitrage hedge fund strategies. Convertible bonds, corporate bonds, and mortgage backed bond arbitrage may have issues due to LTCM with credit spreads widening and statistical correlations decoupling. Gradante believes that the New York Federal Reserve Bank acted swiftly and brilliantly in avoiding potential systemic risks. He points out that merger arbitrage was negatively affected by LTCM as spreads narrowed then widened. Gradante lobbies for increased transparency in the hedge fund industry