Worst Hedge Fund Losses and Failures: 10 Cases From LTCM to Archegos

Measured in dollars, the largest losses on this page are Archegos in 2021, whose default cost banks more than $10 billion, Melvin Capital, whose short positions lost about $7 billion of capital in January 2021, and Amaranth Advisors, which lost almost $6 billion on natural gas in about a month in 2006. Long-Term Capital Management lost 44% of its value in August 1998 alone and needed a $3.6 billion rescue. Six more cases complete the list of ten, from Tiger Management's exit in 2000 to Pequot Capital, whose wind-down was announced in 2009 before its SEC settlement in 2010.

The ten cases are ordered by date, not ranked, because the losses are not measured the same way: some are fund losses, some are losses to lenders, some are frauds. Each one states which measure applies and links to the regulator, court or fund document behind it. The chart below puts side by side the five cases whose loss is published in dollars.

The 10 collapses at a glance

1. Long-Term Capital Management, 1998

LTCM was founded in February 1994 by a former vice chairman of Salomon Brothers. It returned 20% in 1994, 43% in 1995, 41% in 1996 and 17% in 1997, using arbitrage trades that each earned little and therefore needed leverage: at the end of 1997 it held about $30 of debt for every $1 of capital. When Russia devalued and stopped paying its debt in August 1998, the spreads it was betting on widened instead of narrowing, and the fund lost 44% of its value that month. On September 23, 1998, a group of 14 banks and brokerage firms agreed to invest $3.6 billion; the Federal Reserve brought them together without putting its own money at risk.

The President's Working Group on Financial Markets, which reviewed the case in 1999, put the fund's capital at $4.8 billion on January 1, 1998, $4.1 billion on July 31 and $2.3 billion after the August losses of $1.8 billion: more than half of the year's starting equity was gone before the rescue.

2. Tiger Management, 2000

Julian Robertson started Tiger in 1980 with $8 million and grew it to about $21 billion under management. In the late 1990s his value approach fell out of favor, and investors withdrew some $7.7 billion after August 1998. On March 30, 2000, he wrote to his partners that he would return all capital, calling the technology craze a market where "earnings and price considerations take a back seat to mouse clicks and momentum." Tiger is on this list for the scale of the retreat, not for a blow-up: the fund was closed in an orderly way, and nearly 200 hedge fund firms trace their start to Tiger, the so-called Tiger Cubs. Robertson died on August 23, 2022, at 90.

3. Bayou Group, 2005

Bayou fell apart in 2005 after its managers were found to have signed off on reports showing the fund was profitable when it was not. Investors lost more than $450 million. Its chief was sentenced in April 2008 to 20 years in prison and ordered to pay $300 million. Bayou is the reminder that a fraud can hide real trading losses: according to the SEC, the funds never posted a year-end profit, reported a $43 million gain for 2003 when they had lost $49 million, and used a sham audit firm, Richmond-Fairfield Associates, to certify the fake results.

4. Amaranth Advisors, 2006

Amaranth opened 2006 with $7.4 billion and reached a high of $9.2 billion in August. Its natural gas book then went wrong: by September 20, 2006, the fund had lost almost $6 billion in a month, down about 65% for the month and 55% for the year, and had to transfer its energy portfolio to a third party. In 2009 the Amaranth entities agreed to pay a $7.5 million civil penalty to the CFTC over attempted manipulation of natural gas futures.

5. Bear Stearns structured credit funds, 2007

Two Bear Stearns hedge funds made leveraged bets on structured securities tied mostly to subprime mortgages. They collapsed in June 2007, and the SEC put investor losses at about $1.8 billion. The SEC alleged that investors were told direct subprime exposure was 6% to 8% of each fund, while total direct and indirect exposure was about 60%.

6. Peloton Partners, 2008

Peloton's asset-backed securities fund had returned 87% in 2007, largely on bets against subprime. In February 2008 the firm told investors it was forced to liquidate the $2 billion fund as the credit markets kept deteriorating. The fund's exact final loss is not published in the sources we could check; what is documented is the speed, from a record year to liquidation in about two months.

7. Galleon Group, 2009 to 2011

Raj Rajaratnam and three Needham & Company colleagues, Krishen Sud, Gary Rosenbach and Ari Arjavalingam, formed Galleon Group in January 1997. The firm was brought down by an insider trading case: it closed its hedge funds in 2009, after Rajaratnam was charged, and on May 11, 2011, a Manhattan jury found him guilty on 14 counts, in what the U.S. Attorney called the largest hedge fund insider trading scheme in history. Galleon's loss was legal and reputational rather than a trading loss, so no fund loss figure applies.

8. Pequot Capital, 2009 to 2010

In May 2009, its founder told clients he would close the firm, which then managed about $3.5 billion, citing the adverse publicity of an insider trading investigation. On May 27, 2010, Pequot and its chairman agreed to pay nearly $28 million to settle SEC charges of insider trading in Microsoft shares in April 2001; the funds had made more than $14 million on the trades. The chairman was barred from working with an investment adviser, except for activities aimed solely at winding Pequot down.

9. Archegos Capital, 2021

Archegos was a family office rather than a classic hedge fund, but its collapse is the largest on this list. According to the SEC, its value grew from about $1.5 billion with $10 billion of exposure in March 2020 to more than $36 billion with $160 billion of exposure in March 2021.

Price falls in its most concentrated positions then triggered margin calls it could not meet. Banks lost more than $10 billion, Credit Suisse alone $5.5 billion. Its founder, Bill Hwang, was convicted in July 2024 and sentenced in November 2024 to 18 years in prison.

10. Melvin Capital, 2021 to 2022

GameStop was one of Melvin's short positions. The January 2021 squeeze erased about $7 billion of its capital, and the fund ended 2021 down 39%. On May 18, 2022, with $7.8 billion under management at the end of April, its founder announced he would wind the firm down. Our page on the biggest short squeezes in history covers the GameStop episode from the other side.

Risk lessons from the ten cases

LTCM, Amaranth, the Bear Stearns funds, Peloton and Archegos went down through the same loop: falling prices, a call for more margin or collateral, forced sales, and lower prices again. Leverage decides how fast it turns, which is why a fund with small losses on paper can be gone within weeks.

For the practical side of cutting losses, see how hedge funds use stop losses and our guide to position size. The traders who avoided these endings are profiled in our list of the most successful stock traders and in the famous traders section.