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LTCM: beyond bonds
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October 7, 1998: 7:10 a.m. ET
Hedge fund invested in takeover stocks, financial services industry
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NEW YORK (CNNfn) - Long-Term Capital Management LP, the U.S. hedge fund that nearly collapsed from bad debts, wasn't your average hedge fund.
According to the Wall Street Journal, LTCM appears to have moved beyond the bond arbitrage investments it was known for and bought up takeover stocks.
LTCM was bailed out from imminent collapse late last month by a consortium of 14 banks and brokerages that pulled together a $3.6 billion rescue package.
LTCM owned $539.2 million worth of stock in 76 companies as of June 30, according to the Journal, which based its report on filings at the Securities Exchange Commission. Among its investments, were companies slated for takeovers, such as Teleport Communications Group and Waste Management Inc (WMI), which agreed in March to merge with USA Waste. The SEC filings apparently do not include LTCM's larger equity derivative positions.
Funds involved in mergers and acquisition arbitrage simultaneously purchase stock in the company being acquired and sell stock in its acquirer.
The hedge fund's non-takeover-related stock holdings included stakes in Dell Computer Corp. (DEL), Bear Stearns Cos. (BSC), and Revlon Inc (REV), the Journal reported.
Moreover, the Financial Times said LTCM also invested in the financial services sector, which has witnessed the strongest level of merger and acquisition activity in recent months.
It reportedly had a $1.3 million stake in Crestar Financial (CF), the Virginia bank group that said in July it was being acquired for $9.5 billion by SunTrust (STI), the largest bank in Georgia.
The Journal noted that the disclosure of LTCM's stock holdings indicates that the Greenwich, Conn., hedge fund was involved in bets on the relative values of company stock, convertible stock, warrants, options and the relative values of the voting and nonvoting shares.
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Hedge Fund Association
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