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LTCM forms new board
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September 30, 1998: 8:41 p.m. ET
Oversight committee told not to discuss activities with employers
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NEW YORK (CNNfn) - Long Term Capital Management, the beleaguered hedge fund firm, named a board of directors Wednesday to help shore up the fund.
In a statement, officials said the 14 financial institutions that bailed out the fund will have one representative on the board.
The group also founded a new oversight committee which will take charge of the fund's investment strategy, capitalization structure, credit and market risk management, personnel matters and other important decisions. Members of that committee will devote all their time to shoring up the fund and no longer work for their employers.
More importantly, members of the oversight committee have agreed not to discuss the fund's daily operations with anyone at their respective financial institutions. They have also agreed to base all decisions on whether they would be good for the fund's financial performance and to disregard any impact the decisions might have on their employers.
Earlier on Wednesday, officials announced that the 14 financial institutions that orchestrated the bailout had persuaded more than 30 Wall Street firms to get in on the action.
Reports surfaced Wednesday that an offer by billionaire investor Warren Buffet was rejected last week.
Buffett, along with American International Group Inc. and Goldman, Sachs & Co., offered last week to buy LTCM for $250 million. The bid would have forced hedge fund founder John Meriwether, a former Salomon Brothers super-trader, to step down.
Under terms of the unsuccessful bid, Goldman Sachs would reportedly have invested $300 million and managed the portfolio, while Berkshire Hathaway Inc., the investment company headed by Buffett, would kick in $3 billion. Financial services and insurance powerhouse AIG would have put up another $700 million.
LTCM, however, rejected the offer, opting instead for the bailout by a consortium of commercial and investment banks, the Journal said. The rescue package, which also included Goldman, was orchestrated with help by the Federal Reserve Board.
The consortium now owns roughly 90 percent of the fund.
According to the Journal, Buffett has a long history with Meriwether, who ran the wildly lucrative bond arbitrage group at Salomon Brothers in the 1980s when Buffett first invested in then-parent Salomon Inc..
Buffett was named chairman of Salomon after the Treasury-bond bid-rigging scandal in 1991, which led to Meriwether's resignation.
The Financial Times reported Wednesday that another 35 or so financial services firms have agreed to extend liquidity to LTCM, including a $900 million syndicated loan. Some, too, have agreed to temporarily waive margin calls.
According to the report, about nine members of the rescue consortium are also members of the $900 million loan syndicate arranged two years ago by Chase Manhattan.
LTCM's effort to draw down part of the loan facility two weeks ago reportedly is partially blamed for the near-collapse of the fund.
Chase Manhattan, the nation's largest bank, disclosed on Tuesday that roughly $3.2 billion of its total loan portfolio is exposed to hedge funds. 
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