![]() ![]() Such was the extent of LTCM’s leverage that a single basis point (0.01%) change in interest rates/yields would have increased or decreased their portfolio size by many million dollars. It is said that total exposure size of LTCM ranged in range of USD 3 to 4 trillion, which was spread across markets ranging from US to Japan to EU to Latin America. No one knew the exact extent of indirect leverage LTCM was carrying on its books. from USD 56 to USD 57 (a return of 1.7% on total assets), then after deducting debt of USD 55, its equity increased to USD 2, which is 100% return on its own equity.Īs per When Genius Failed, 1:55 was the known direct leverage on LTCM’s equity. If the value of the investment increased by USD 1 i.e. It means that it put USD 1 of its own money and raised USD 55 by debt and invested USD 56 in its own name (at USD 4.6 billion of own equity, this asset size amounts to USD 253 billion, which is 4.6*55). LTCM is said to have leveraged its equity even up to 1:55 levels using direct leverage at one point of time with 1:30 to 1:40 being the norm. LTCM used to get heavily leveraged directly by using the credit lines extended by almost all the Wall Street institutions and indirectly by taking exposure in derivatives including credit default swaps (CDS). ![]() ![]() However, its total asset size was much larger than USD 4.6 billion. At its high point in 1998, it had USD 4.6 billion in partner’s equity. ![]()
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