Even though we didn’t get charged a haircut, we had a risk management process where we calculated our hypothetical working capital. We went through every trade and said, “Suppose we are in a really stressful time, how much would the haircut be?” As Long-Term’s strategies grew more diverse, the fund felt comfortable taking bigger positions. It focused on its portfolio as a whole, and thus it was willing to pile bigger trades onto each of its “risk” dollars back in the vault. The theory, of course, was that the likelihood of many leveraged trades collapsing simultaneously was slim, just as an
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