The Rise & Fall of Archegos Capital !!
He had 20 Billion dollars & he lost it all in 2 days.
Before he lost it all “Bill Hwang” was the greatest trader you'd never heard of.
Starting in 2013, he parlayed more than $ 200 million left over from his shuttered hedge fund into a mind-boggling fortune by betting on stocks. Had he folded his hand in early March and cashed in, Hwang, 57, would have stood out among the world's billionaires. There are richer men and women but their money is mostly tied up in businesses, real estate, complex investments, sports teams and artwork.
The sudden implosion of “Archegos Capital” is one of the most spectacular failures in modern financial history. No individual has lost so much money so quickly. At its peak, Hwang's wealth briefly eclipsed $ 30 billion.
He became the biggest of whales in the market-without ever breaking the surface. "Archegos" never showed up in the regulatory filings that disclose major shareholders of public stocks. Hwang used swaps, a type of derivative that gives an investor exposure to the gains or losses in an underlying asset without owning it directly. This concealed both his identity and the size of his positions. Even the firms that financed his investments couldn't see the big picture.
He was using borrowed money and levering up his bets five-fold. Banks dumped his holdings, savaging stock prices. Credit Suisse, one of Hwang's lenders, lost $ 4.7 billion and several top executives including the head of investment banking were forced out. Nomura Holdings also faced a $ 2 Billion loss.
Modest on the outside, Hwang had all the swagger he needed inside the "Wall Street prime-brokerage departments that finance big investors". He was an alumnus of Tiger Management, the hedge fund powerhouse that Julian Robertson founded in the 2000′s, Hwang ran his own fund, Tiger Asia Management, which peaked at about $ 10 billion in assets.
It didn't matter that he'd been accused of “Insider Trading” by U.S. securities regulators or that he pleaded guilty to “Wire fraud” on behalf of Tiger Asia in 2012. Archegos was a lucrative client for the banks and they were eager to lend Hwang enormous sums.
Archegos appears to have plowed most of the money it borrowed into a handful of stocks. Hwang invested the Tiger way, using deep fundamental analysis to find promising stocks and he built a highly concentrated portfolio.
In 2013, "Hwang" started "Archegos" as a family office. There were no outside investors this time, only the money from him and some of the friends.
U.S. rules prevent individual investors from buying securities with more than 50 % of the money borrowed on margin. No such limits apply to hedge funds and family offices. People familiar with Archegos say the firm steadily ramped up its leverage.
That's how Hwang was able to amass huge positions so quietly. Because lenders only had detail of their own dealings with him.
One problem with stock-picking at Hwang's scale is "Hedging".
Leverage was playing a growing role and Hwang was looking for more. Credit Suisse and Morgan Stanley had been doing business with Archegos for years, unperturbed by Hwang's brush with regulators. Goldman, however, had blacklisted him.
In the month of March 2020, Stocks tanked, Hwang's bets suddenly went haywire, jeopardizing his swap agreements. A few bankers pleaded with him to sell shares, he would take losses and survive, they reasoned avoiding a default and "Hwang" refused.
The dilemma for Hwang's lenders was obvious. If the stocks in his swap accounts rebounded, everything would be fine but if even one bank flinched and started selling, they'd all be exposed to plummeting prices.
On march 24, without a word to its fellow lenders, Morgan Stanley made a pre-emptive move. The firm quietly unloaded $ 5 billion of its Archegos holdings at a discount.
When the smoke finally cleared, Goldman, Deutsche Bank, Morgan Stanley and Wells Fargo had escaped the Archegos fire sale almost unscathed. Credit Suisse and Nomura appeared to have sustained the greatest damage.
The best thing anyone can say about the “Archegos collapse” is that it didn't spark a market meltdown. The worst thing is that it was an entirely preventable disaster.
European rules require the party bearing the economic risk of an investment to disclose its interest. In the U.S, whales such as "Hwang" could stay invisible.
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