The UBS warrant raised $1 billion of equity for Long-Term at the worst possible moment—when the fund was struggling to find places to invest the money it already had and when it was fighting off more and more competitors in arbitrage. In the first half of 1997, it earned only 13 percent before fees—still impressive, though well below its prior average. Its leverage (again, not counting derivatives) fell from 30 to 1 to 20 to 1, evidence that opportunities had grown scarce. A group of skeptical partners, including Scholes, were growing increasingly uncomfortable with the fund’s portfolio.
