04/01/2021 12:01 PM
Updated 04/01/2021 12:01
From his pedestal atop Midtown Manhattan, directly across from Carnegie Hall,
was quietly building one of the world's greatest fortunes.
Even on Wall Street, few noticed it, until all of a sudden everyone did.
Hwang and his private investment firm,
Archegos Capital Management
, are now at the center of one of the biggest margin adjustments of all time -
a multi-million dollar fiasco
involving secret market bets dangerously leveraged and canceled in the blink of an eye. .
of more than 20,000 million dollars in shares linked to the investment firm Archegos has triggered alerts about the opaque financial instruments that its manager Bill Hwang used to invest massively in companies and that have ended up dragging
investment funds , banks and multinationals
And everything has happened in a matter of days.
His extraordinary streak of fortune
took a turn
early last week, when shares of ViacomCBS, one of the stocks that boosted the mogul in 2020, plunged 9%.
Other stocks in which Hwang had significant positions also fell and, at the end of Thursday, the value of his portfolio lost 27%, more than enough to wipe out the investor's equity, which, according to market sources, was leveraged from
six to six. eight times.
Bill Hwang, director of the investment firm Archegos.
Photo: Twitter Bill Hwang
Much of the debt Hwang was
held by big banks
like Nomura and Credit Suisse through financial derivatives such as swaps (financial exchanges) and CFD (contract for difference), which means that archegos may not have possessed
greater part of the underlying securities, if any.
A portion of Hwang's portfolio was worth nearly
$ 40 billion last
week. Bankers estimate that Archegos' net worth, essentially Hwang's wealth, had reached more than $ 10 billion.
And as they keep popping up, estimates of your company's total positions keep rising to tens of billions, 50 billion, even more than 100 billion.
But in a few days,
all of that evaporated.
"I've never seen anything like this - how quiet it was, how focused and how quickly it disappeared," said Mike Novogratz, a career macro investor and former Goldman Sachs partner who has been operating since 1994. "This has to be
one of the the biggest losses
of personal wealth in history ”.
The Japanese bank Mizuho may have lost $ 90 million to the Archegos saga.
On Monday, late in New York, Archegos broke days of silence about the episode.
"This is a challenging time for the Archegos Capital Management family office, our partners and employees," said Karen Kessler, a spokeswoman for the firm, in an emailed statement.
"Plans are being discussed while Mr. Hwang and the team determine
the best way forward
The cascade of business losses has reverberated from New York to Zurich, Tokyo and beyond, leaving
unanswered, including the most important: how could anyone take such huge risks, facilitated by so many banks, right under the noses of regulators? of all the world?
Part of the answer is that Hwang created Archegos as a
a company that exclusively manages a fortune and does not need to register with the US regulator, the SEC, so it is not required to disclose its owners, executives or volume. that manages.
From there, the entrepreneur used derivatives to accumulate large holdings in companies without having to disclose them.
At the same time, prestigious banks welcomed him as a client, despite his history of insider trading and attempts to manipulate the Chinese market that drove him out of the
a decade ago.
The financial group Mizuho, also affected.
Sung Kook “Bill” Hwang shut down Tiger Asia Management and Tiger Asia Partners after settling a civil lawsuit from the SEC in 2012 following allegations of insider trading and manipulation of Chinese bank stocks.
At the time, Hwang and the firms
paid US $ 44 million
and he agreed to be excluded from the investment advisory industry.
It was then that he
(Greek for “one who leads the way”) and structured it as a family office.
Family offices that exclusively manage a personal fortune are exempt from registering as investment advisers with the U.S. Securities and Exchange Commission.Therefore, they do not have to disclose to their owners, executives or how much they manage, rules designed to protect to outsiders who invest in a fund.
That approach makes sense for small family offices, but if they grow to the size of a hedge fund, they can still present risks, this time for outsiders in the larger market.
"This raises questions about family office regulation once again," said Tyler Gellasch, a former SEC aide who now runs the Healthy Markets business group.
“The question is if they are just friends and family, why do we care?
The answer is that they can have a significant impact on the market, and the SEC's regulatory regime even after the Dodd-Frank Act, does not clearly reflect this. "
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