Bill Hwang stood atop one of the biggest yet least-known fortunes on Wall Street until recently. Banks were eager to make deals with his Archegos Capital Management till his luck finally ran out. This 57-year-old veteran investor made $10 billion from his private investment firm, borrowing billions of dollars from Wall Street banks.
Hwang took enormous positions in a few Chinese and American stocks. He was the financial force behind 20 million-dollar shares of ViacomCBS by mid-march. Furthermore, he was the single largest institutional shareholder for ViacomCBS till its shares precipitated in late March.
Only a few people knew that Hwang’s shares were held through derivatives created by banks. When Archegos couldn’t pay the money demanded by lenders, its assets were seized and sold off. This happens to be one of the biggest implosions ever since the financial crisis in 2008.
Hwang’s personal wealth shriveled overnight, and he was left bankrupt. Charles Geisst, a historian of Wall Street said, “Archegos was able to hide its identity from regulators by leveraging through banks in what has to be the best example of shadow trading.”
It happens to be one bygone tale where a perfect combination of savvy, ambition, and time can give amazing profits crumbling in a moment when scenarios change. This meltdown of Archegos has ripple effects on the bank lenders. Two of them revealed billions of dollars in losses, and ViacomCBS shares’ price halved within a week.
A preliminary inquiry on Mr. Hwang’s firm is on the go, as said by people familiar with the matter. While market watchers are calling out for tougher oversight of family offices like Hwang’s, others are calling out for enhanced transparency for the kind of derivatives sold to Hwang.
Hwang was modest regarding his personal life. Being a religious man, he started a non-profiting Grace and Mercy Foundation in New York to sponsor religious book clubs and Bible readings. This foundation, growing its assets from $ 70 million to over $500 million under a decade, donated millions of dollars to Christian organizations.
He embraced risk in his investing approach, with his firm Tiger Asia running afoul of regulators. Hwang reached a civil settlement with U.S. security regulators in 2012 and was fined $44 million. He opened Archegos, meaning prince or leader in Greek, shortly after shutting Tiger Asia down.
This new firm, also investing in the Asian and U.S. stocks, was similar to a hedge fund, except for its assets, which came entirely from Hwang and his family’s personal wealth. This is what shielded Archegos from regulatory checks, as there were no public investors.
ViacomCBS, on March 22, announced its plans to sell new shares hoping for Hwang to turn up. But Hwang had a change of plan for unknown reasons, leading ViacomCBS to significantly falling off their target. By March 25, Archegos was already critical, and people started selling their shares, sensing the failure.
Hwang’s wealth plummeted as soon as ViacomCBS shares flooded the market. Hwang remained low, issuing a brief statement calling this time challenging for the Archegos.