Along with investing the commercial mortgages market, LTM decided to invest in equities overseas. Comapanies they invested in included, Royal Dutch Petroleum of the Netherlands and Shell Transport of England. Victor Haghani, the LTM representative overseas bet a total of $2.3 billion, half on Shell and half on Royal Dutch. LTM also decided to invest in equity in America, Larry Hilibrand, the LTM representative, began betting on merger arbitrage. This was an area LTM had zero expertize, but Hilibrand still decided to invest. Hilibrand set a deal with CBS, which is known to be the most controversial deal in firm history.
Later that summer, LTM was hit with bad news, that the MCI merger had reduced in price and MCI’s stock declined rapidly. This resulted in Long Term losing $150 million overnight. This was the first true sign of LTM taking too many big risks. However, some good news hit the firm, Merton and Scholes won the Nobel Memorial Prize in Economic Science for their “new method to determine the value of derivatives.”
- In your opinion do you think Meriwether’s idea of expanding his firm’s thoughts outside of hedge funds was a good idea?
- Who were LTM’s biggest competitors in the bond arbitrage market?