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Bloomberg
One of the world’s greatest hidden fortunes is wiped out in days
(Bloomberg) – From his perch above Midtown Manhattan just across from Carnegie Hall, Bill Hwang was quietly building one of the world’s greatest fortunes. Even on Wall Street, few people noticed – until everyone to do it. his private investment firm, Archegos Capital Management, is 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 exploited and untied in the blink of an eye. be replenished from stocks dumped by banks in recent days – ViacomCBS Inc., Discovery Inc. GSX Techedu Inc., Baidu Inc. – which had all skyrocketed this year, sometimes confusing traders who didn’t know why. 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 keep climbing: tens of billions, $ 50 billion, or even over $ 100 billion. how badly it faded and how quickly it 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 in wealth personal story. in New York, Archegos broke days of silence on this episode. “These are difficult times for the Archegos Capital Management family office, our partners and 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 trading losses has reverberated from New York to Zurich to Tokyo and beyond, and leaves a myriad of questions unanswered, including the biggest: how could someone 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 raise 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 manipulation of stocks. 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 “the one who leads the way” – and structured it as a family office. a fortune is generally exempt from registering as an investment advisor with the United States 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. Said Tyler Gellasch, a former SEC aide who now heads the Healthy Markets trading group. “The question is, if it’s just friends and family, why do we care? The answer is they can have big impacts on the market, and the SEC’s regulatory regime, even after Dodd-Frank, doesn’t clearly reflect that. Valuable CustomerArchegos has established business partnerships with companies such as Nomura Holdings Inc., Morgan Stanley, Deutsche Bank AG and Credit Suisse Group AG. For some time after the SEC affair, Goldman refused to do business with him for compliance reasons, but relented as his rivals were profiting from his needs being met. The full picture of his holdings is still under review. emerging, and it’s unclear which positions derailed, or which hedges One reason is that Hwang never filed a 13F report on his holdings, which any investment manager with more than $ 100 million in US equities must be completed 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 on transactions with their customers. Unhappy Investors’Goldman increased its position by 54% in January, according to regulatory documents. 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 bet big. “I’m sure there are a number of really disgruntled investors who have bought these names over the past couple of weeks,” and now lament it, Doug Cifu, managing director of e-commerce company Virtu Financial Inc. , said Monday in 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 previously 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, which the 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 Christian faith. . “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 share price plunged 9% the next day, the value of other securities that would be in Archegos’ portfolio based on block traded positions followed. At Thursday’s close, the value of the portfolio fell 27 % – more than enough to wipe out an investor’s equity which market participants say has increased six to eight times. “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.” (Adds a comment from Archegos to the 8th paragraph.) For more articles like this, please visit us at bloomberg.com source. © 2021 Bloomberg LP
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