- Bill Hwang lost $8 billion dollars in 10 days during the Archegos meltdown, The Wall Street Journal reported.
- Traders and investors said this is one of the fastest losses they have ever seen.
- The fiasco exposed the fragility of the financial system and shed light on more obscure practices such as the use of total return swaps.
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Amid the largest melt down of a firm Wall Street has witnessed since the global financial crisis, it wasn’t just banks that lost billions. Bill Hwang, the man behind Arcehgos Capital Management, also suffered a staggering $8 billion dollars in 10 days – one of the fastest losses of that size traders have ever seen, The Wall Street Journal reported.
The massive selloff was largely felt on Friday last week when shares of media conglomerates and investment banks dropped off, sending shockwaves through the market and sparking fears of wider spread contagion.
Japanese firm Nomura Holdings said it could suffer a possible loss of around $2 billion, while Credit Suisse Group, which has declined to provide a numerical impact, could see around $3 billio-$4 billion, according to reports.
Hwang, who founded Archegos as a family office in 2013, used borrowed money to make large bets on some stocks until Wall Street banks forced his firm to sell over $20 billion worth of shares after failing to meet a margin call, hammering stocks including ViacomCBS and Discovery.
The fiasco exposed the fragility of the financial system, especially those involving lesser-known practices such as a total return swaps, a derivative instrument that enabled Hwang’s office not to have ownership of the underlying securities his firm was betting on.
It also revealed the lack of oversight of family offices, which manage more than $2 trillion, The Wall Street Journal reported. Family offices don’t have to disclose investments, unlike traditional hedge funds.
“The collapse of Archegos Capital Management and the billions of dollars in losses to investors and other market participants is a vivid demonstration of the havoc that errant large investment vehicles called ‘family offices’ can wreak on our financial markets,” Dan Berkovitz, a Democratic commissioner on the Commodity Futures Trading Commission, said in a statement, Thursday.
“A ‘family office’ has nothing to do with ordinary families. Rather, it is an investment vehicle used by centimillionaires and billionaires to grow their wealth, reduce their taxes and plan their estates,” Berkovitz said.
The founder grew his family office’s $200 million investment to $10 billion, but he did not need to register as an investment advisor since he was only managing his own wealth.
But this isn’t the first time the devout Christian founder, who is known for his risky investments, has run into trouble. In 2012, Hwang pleaded guilty to insider trading and closed down his Tiger Asia Management fund. He was banned from managing clients’ money in the US for five years. In Hong Kong, he was also banned from trading securities in 2014 for four years.
Yet, in spite of the huge losses as a result of his fund’s implosion, some have praised Hwang’s abilities.
Tom Lee, head of research at Fundstrat Global Advisors, in a tweet on Tuesday, said investors should be cheering hedge fund successes not jeering their failures. Lee said Hwang, who he has known for many years, is “easily in the top 10 of the best investment minds” that he knows.
Meanwhile, billionaire hedge fund pioneer Julian Robertson, who founded Tiger Management in 1980, maintained that he is a “great fan” of former Tiger cub Hwang and would invest with him again despite the recent turn of events.