Archegos Capital Management boss Bill Hwang reels after fund meltdown - This is Money

The man at the centre of a hedge fund meltdown has broken his silence after suffering 'one of the single greatest losses of personal wealth in history'.

Bill Hwang, a multi-billionaire financier who invested his wealth through his firm Archegos Capital Management, went to ground after his fund hit the rocks last week.

But in the first disclosure the firm has made since causing a £20billion sell-off, a spokesman for Archegos said Hwang, pictured, was having a 'challenging time' and was still trying to 'determine the best path forward'.

Fund crisis: Bill Hwang, a multi-billionaire financier who invested his wealth through his firm Archegos Capital Management, went to ground after his fund hit the rocks last week

The comments came as experts tried to get a grip on the losses which Hwang has suffered.

Mike Novogratz, a former Goldman Sachs partner who has been investing for almost three decades, said: 'When the facts come out, my sense is the Bill Hwang blow-up will be the most spectacular personal loss of wealth in history.'

Bankers and analysts have estimated that the personal fortune of Hwang, a former hedge fund manager known as a 'Tiger cub' because he earned his credentials at the renowned Julian Robertson's Tiger Management, could have topped £7billion before last week's meltdown.

But because he borrowed so much to increase the size of his trades, the sell-off he caused was much bigger.

Rival banks caught out by Goldman 

Goldman Sachs has riled rival banks after leading the Archegos sell-off, which left the likes of Credit Suisse and Nomura suffering heavy losses.

The prime broker arm of Goldman lent heavily to Archegos. So had Credit Suisse, Nomura, UBS, Morgan Stanley and Wells Fargo. When it became clear some Archegos bets were turning sour, the banks realised they would need to sell some of the shares they held for Archegos to recoup money owed.

They held talks that extended late into Thursday on how to do it in an orderly way. Sources said they were close to reaching an agreement. But on Friday, when markets opened, Goldman sold huge blocks of Hwang’s shares, and prices fell.

The rest rushed to follow suit.

Nomura has said the incident could wipe out its profits from the last six months, and Credit Suisse estimated the hit would be between £2billion and £3billion.

A source close to one of the banks said: ‘There was certainly a bit of that “I’m alright, Jack” mentality from Goldman.’

Archegos said: 'This is a challenging time for the family office of Archegos Capital Management, our partners and employees. All plans are being discussed as Mr Hwang and the team determine the best path forward.'

So-called family offices like Archegos, which manage the money of one very wealthy family, are exempt from making many of the disclosures which normal hedge funds and investment firms are held to. 

This means the actual size of Hwang's fortune, and how much has been eroded from it, are unclear.

Archegos fell into trouble last week, after a few stocks it placed big bets on – including US media titans Viacom, CBS and Discovery – fell in value.

Shareholders were worried that the companies were losing ground to newer rivals such as Netflix and Disney Plus. 

But the situation spiralled out of control for Archegos. It had borrowed large amounts of money from the prime brokerage arms of banks to increase its stake in firms such as Viacom.

This allowed it to buy a larger exposure than it would otherwise be able to afford.

But when those prime brokers saw Viacom shares falling, they issued a margin call – essentially asking Hwang to give them more money as security, to protect them from any losses.

Hwang didn't have the cash to hand, meaning he defaulted on his loans with the prime brokers. This gave them the right to sell the shares they held on his behalf, to recoup the money he owed them.

It prompted a sell-off of around £20billion, as prime brokers including Goldman Sachs, Morgan Stanley, Wells Fargo and UBS rapidly offloaded Hwang's stock, causing their price to plummet further as the market was flooded.

Credit Suisse and Japanese bank Nomura, which were slower to sell, have suffered massive losses. Analysts at JP Morgan estimate losses across all banks from the crisis could hit £7bn.

Now, regulators around the world are quizzing the prime brokers involved, to see if any acted inappropriately. 

The UK's Financial Conduct Authority and the US Securities and Exchange Commission have requested information from the banks.

Although the debacle might be the most financially painful for Hwang, it isn't the first scandal he has been involved in.

In 2012, he admitted in a US lawsuit to insider trading and manipulating Chinese bank stocks. He stumped up £32million in fines and agreed to be barred from the industry. 

For years after, he was blacklisted by banks including Goldman Sachs which refused to work with him.

Goldman eventually relented, enticed by the lucrative business which Hwang represented.

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2021-03-30 21:19:33Z
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