# kaal:claim:3405660-006

**Claim.** LTCM was diversified across markets but not across strategy, so its positions failed together; market level diversification does not imply strategy level diversification.

**Type.** failure  **Support.** evidenced

**Holds when.**

- stress conditions in which risk spreads widen across markets simultaneously

**Source quote.**

> It became obvious that while the fund was diversified in terms of markets, its overall strategy was not diversified.

**From.** Kaal, *Indirect Regulation of Hedge Funds* (2019), II. The Need for Hedge Fund Regulation, page 6

**Cite as.** Kaal, Indirect Regulation of Hedge Funds (2019). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3405660

**Verify.** sha256 of source PDF `cf507b1833071765bc13a5605f38c2591582eca85f40869e38b6ff075c04d29d` at https://raw.githubusercontent.com/wulfkaal/Academic-Papers/main/papers/pdf/Kaal%20-%202019%20-%20Indirect%20Regulation%20of%20Hedge%20Funds.pdf

**Failure mode.** illusory diversification  (family: systemic-risk-transmission)

**Topics.** systemic-risk, risk-and-incentives, private-funds

**Keywords.** ltcm, diversification, correlated-risk, hedge-fund-strategy

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