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This is the first of a two-case series (299-001-1 and 299-002-1). In September 1998, the well known US hedge fund, Long Term Capital Management (LTCM) announced it had lost 44 per cent of its investors money in August alone. This shock caused the Federal Reserve System to organise a bail-out by banks and investment houses to save the fund from liquidation and to prevent follow-on damage to US financial markets. Part One of the case study places LTCM in context as the case looks at the nature of hedge funds in the investment business in general - their structure, regulatory position, trading strategies and risk/return profiles. Traditional theoretical models of investment are shown to be deficient in several respects and largely incompatible with the practice of hedge fund investment. Part Two deals with the detail of LTCM''s near-collapse and rescue in September 1998. Following a profile of LTCM, the case looks at the fundamental reasons why LTCM fell into crisis, and the extent of actual and potential damage to the fund''s investors and creditors is examined. LTCM''s trading operations are shown to have contained errors of judgement. Following a review of the government rescue operations, lessons are drawn for the future regulation of hedge funds.