Huang Joins Bass’ Private Equity Shop

Two prominent partners at the now infamous Long-Term Capital Management LP will be reunited when Chi-Fu Huang joins Nobel laureate Myron Scholes at Oak Hill Capital Partners, the $6 billion private equity partnership affiliated with Texas investor Robert Bass.

Huang was recently hired as a quantitative researcher by Oak Hill, which along with Bass-affiliate Keystone Inc. has employed original LTCM partner Scholes as a consultant since April. A spokeswoman for Oak Hill declined to comment on Huang’s hire, but other sources indicated that at least some of his research might focus on how to trade fixed-income instruments without relying on the enormous leverage that contributed to the downfall of LTCM.

“I don’t think that those guys necessarily believe themselves to be the cause of the problems,” said one derivatives pro. “I also think that to the extent that they had anything to do with what happened, they are convinced that they learned their lesson and it won’t happen twice.”

A spokesman for LTCM confirmed that Huang was in the process of finishing up his activities at the hedge fund and said that the Tokyo operation that he headed will be closed down.

Scholes, who teaches at Stanford University’s Graduate School of Business, was one of the inventors of the famous Black-Scholes options pricing theory, which has become the most widely used model for options valuation. Last month, at the first anniversary of LTCM’s collapse, Scholes gave a speech in which he suggested that firms should protect themselves against liquidity risk by buying liquidity options that give them the right, but not the obligation, to sell their assets at a pre-agreed price.

The Bass brothers are well known for their distaste of publicity. But Robert Bass, third son of oilman Perry Bass, broke from the family when his father passed the reigns to a brother and has been investing alone ever since. Oak Hill Partners operates four funds, including Oak Hill Capital Partners, Oak Hill Strategic Partners and two Oak Hill Securities funds.

Huang declined to comment on his move and it remains unclear if other LTCM pros will be joining him. Scholes did not return a phone call by press time.