What happened in this episode?
Investor and former LTCM partner Victor Haghani discusses his early life between the US, Iran and the UK, then his formative years on Salomon Brothers’ fixed-income arbitrage desk. He describes emblematic relative-value trades that combined financing advantages, futures basis and options volatility, and recalls the desk’s ‘Liars Poker’ culture as both entertainment and a way to think about probabilities and restraint.
The interview then turns to Long-Term Capital Management. Haghani outlines how LTCM’s returns outpaced expectations as trades converged quickly, and he walks through an Italian bond strategy designed to harvest carry while reducing credit tail risk through layered hedges. He disputes aspects of the popular When Genius Failed narrative, saying the fund operated by committee and consensus and arguing the book was written too soon and without interviews with partners. On the 1998 crisis, he says LTCM’s direct Russia positions were not the main loss driver; rather, Russia acted as a trigger for a system-wide ‘risk-off’ deleveraging in crowded trades. He alleges large banks also held similar exposures, including claims about Goldman Sachs’ scale and possible Citigroup liquidations.
Haghani offers a personal admission that he over-allocated his own family wealth to LTCM, saying he failed to account for exposure via the management company and his human capital. He explains expected utility as a decision framework for position sizing, arguing individuals should prioritise avoiding ruin and generally avoid leverage, while institutional pools can rationally allocate small slices to leveraged strategies.
Later, he describes moving away from alternative investments, citing tax inefficiency and complexity, towards low-cost indexing and rule-based asset allocation principles that influenced his later work.
