From his perch above Midtown Manhattan, directly across from Carnegie Hall, Bill Hwang was quietly building one of the world’s greatest fortunes.
Even on Wall Street, few people noticed it – until everyone else did.
Hwang and his private investment firm, Archegos Capital Management, are now at the center of one of the biggest margin calls of all time – a multibillion dollar fiasco involving secret market bets that have been dangerously fired. exploited and unwound in the blink of an eye.
Hwang’s most recent rise can be pieced together from stocks abandoned by banks in recent days – ViacomCBS Inc., Discovery Inc. GSX Techedu Inc., Baidu Inc. – which had all exploded this year, sometimes confusing people. traders who couldn’t understand why.
Part of Hwang’s portfolio, which has been block traded since Friday by Goldman Sachs Group Inc., Morgan Stanley and Wells Fargo & Co., was worth nearly $ 40 billion last week. Bankers estimate that Archegos’ net capital – essentially Hwang’s wealth – had reached north of $ 10 billion. And as divestitures continue to emerge, estimates of his company’s total positions continue to rise: tens of billions, $ 50 billion, even over $ 100 billion.
It evaporated in a few days.
“I’ve never seen anything like it – how calm it was, how focused he was and how quickly he faded,” said Mike Novogratz, a career macro investor and former partner at Goldman. Sachs who has been trading since 1994. “This has to be one of the biggest losses of personal wealth in history.”
Monday night in New York, Archegos broke days of silence on the episode.
“These are difficult times for the Archegos Capital Management family office, our partners and our employees,” said Karen Kessler, spokesperson for the company, in an emailed statement. “All plans are being discussed as Mr. Hwang and the team determine the best way forward.
The cascade of business losses spilled over from New York to Zurich to Tokyo and beyond, and leaves a myriad of questions unanswered, including the big one: How could anyone take such big risks, facilitated by so many banks, under the noses of regulators around the world? ?
Part of the answer is that Hwang established himself as a family office with limited oversight and then used financial derivatives to rack up big stakes in companies without ever having to disclose them. Another part is that global banks have embraced him as a lucrative client, despite a history of insider trading and attempted market manipulation that drove him out of the hedge fund industry ten years ago.
A follower of hedge fund legend Julian Robertson, Sung Kook “Bill” Hwang shut down Tiger Asia Management and Tiger Asia Partners after settling a civil SEC lawsuit in 2012 accusing them of insider trading and stock manipulation. Chinese banks. Hwang and the companies paid $ 44 million and he agreed to be kicked out of the investment advisory business.
He quickly opened Archegos – in Greek for “one who shows the way” – and structured it into a family office.
Family offices that exclusively manage wealth are generally exempt from registering as investment advisers with the US Securities and Exchange Commission. So they don’t have to disclose their owners, officers, or how much they manage – rules designed to protect outsiders who invest in a fund. This approach makes sense for small family offices, but if they grow to the size of a hedge fund whale, they can still pose risks, this time to outsiders in the larger market.
“This again raises questions about the regulation of family offices,” said Tyler Gellasch, a former SEC assistant who now heads the Healthy Markets trading group. “The question is if it’s just friends and family why we care? The answer is they can have significant impacts on the market, and the SEC regulatory regime even after Dodd- Frank doesn’t clearly reflect that. “
Archegos has established business partnerships with companies such as Nomura Holdings Inc., Morgan Stanley, Deutsche Bank AG and Credit Suisse Group AG. For a time after the SEC affair, Goldman refused to do business with him for compliance reasons, but relented as his rivals took advantage of his needs being met.
The full picture of his holdings is still emerging, and it’s unclear what positions went off the rails or what hedges he had in place.
One reason is that Hwang never filed a 13F report on his holdings, which any investment manager with more than $ 100 million in US stocks must complete at the end of each quarter. This is because he appears to have structured his transactions using total return swaps, essentially putting positions on bank balance sheets. Swaps also allow investors to add a lot of leverage to a portfolio.
Morgan Stanley and Goldman Sachs, for example, are listed as the biggest holders of GSX Techedu, a Chinese online tutoring company that has been repeatedly targeted by short sellers. Banks may hold stocks for a variety of reasons, including hedging swap exposures resulting from transactions with their customers.
Goldman increased its position by 54% in January, according to regulatory filings. Overall, banks have said they own at least 68% of GSX’s outstanding shares, according to a Bloomberg analysis of the deposits. The banks owned at least 40% of IQIYI Inc, a Chinese video entertainment company, and 29% of ViacomCBS – all on which Archegos had staked big.
“I’m sure there are a number of really disgruntled investors who have bought these names over the past two weeks,” and now regret it, said Doug Cifu, managing director of e-commerce company Virtu on Monday. Financial Inc. an interview on Bloomberg TV. He predicted that regulators will consider whether “there should be more transparency and disclosure by a family office.”
Without the need to market his fund to outside investors, Hwang’s strategies and performance have been kept secret from the outside world. Even as his fortunes grew, the 50-something kept a low profile. Although he once worked for Robertson’s Tiger Management, he was not well known on Wall Street or in New York social circles.
Hwang is a director of Fuller Theology Seminary and co-founder of the Grace and Mercy Foundation, whose mission is to serve the poor and the oppressed. The foundation had assets of around $ 500 million at the end of 2018, according to its latest filing.
“It’s not just about the money, you know,” he said in a rare interview with a Fuller Institute executive in 2018, in which he spoke about his vocation as an investor and his faith. Christian. “It’s about the long term, and God certainly has a long term view.”
His extraordinary fortune turned early last week when ViacomCBS Inc. announced a secondary offering of its shares. Its stock price plunged 9% the next day.
The value of other securities considered to be part of Archegos’ portfolio based on block traded positions followed.
At Thursday’s close, the portfolio’s value fell 27% – more than enough to wipe out the equity of an investor who market participants said had six to eight times leverage.
“You must be wondering who else is out there with one of these unseen fortunes,” Novogratz said. “The psychology of all this leverage without risk management is almost nihilism.”
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