Without making a lot of noise and without attracting attention, investor Bill Hwang was building his fortune from the 90s after the great Asian financial crisis. This billionaire became a successful investor, becoming one of the largest fortunes in the world, without being very controlled on Wall Street. However, now his name echoes through the corridors because of the ruin he has left in other institutions.
The forced liquidation of more than 20,000 million dollars, about 17,000 million euros, that it had in shares with the investment firm Archegos has ended up dragging a multitude of banks, investment funds and multinationals in just a few days, also focusing on its opaque financial instruments to invest massively in companies.
Among the most affected are the Credit Suisse bank, the Japanese bank Nomura and probably Deutsche Bank and Mitsubishi UFJ. The former could be the worst stopped, with losses of more than 3 billion dollars, and the fall of this fund will continue to extend to investment banks in New York, Tokyo and Zurich.
The causes of the fall of Archegos
At the beginning of last week, the shares of ViacomCBS, one of the stocks that boosted the mogul the most in 2020, fell 9%, as well as other stocks in which Hwang had important positions.. On Thursday the value of his portfolio had already lost 27%, enough to wipe out the investor’s assets, which would be leveraged six to eight times.
Hwang had concentrated a large volume of positions in a limited number of stocks, in addition to Viacom CBS in Discovery or the Chinese GSX Techedu, Baidu or Vipshop Holdings. Little by little the losses began to accumulate in Archegos.
The “swap” derivatives or CFDs used by Archengos allow, with the mediation of a bank, open positions based on a share without having to acquire it, so that it has a high leverage and a high risk if the price does not rise. According to some analysts, Archegos’ positions could have exceeded $ 50 billion, most of which evaporated in a matter of days. Namely, took many risks, facilitated by many banks, and the cascade of losses on the stock market has been tremendous.
Archegos functioned as a family office, a company that exclusively manages a fortune and does not need to register with the US regulator, so that it is not obliged to reveal its owners, executives or the volume it manages. Thus, the entrepreneur accumulated large stakes in companies without having to disclose them. However, the fact that Hwang’s company has been forced to sell billions of dollars in investments in the form of highly leveraged bets has led to a rapid dismantling of Archengos.
Who is Bill Hwang and his cascade of losses
This investor He was sued for insider trading when he was the manager of Tiger Asia, for which he paid a fine of $ 44 million. However, he returned to Wall Street with Archegos Capital Management, operating in secret, adopting very large positions in listed companies without having to acquire the securities with the mediation of the investment banks affected, which in return collected large commissions. The fund had accumulated $ 40 billion in assets last week, with a net worth of about $ 10 billion, mostly in the name of Hwang and his family.
Credit Suisse has already advanced that its losses can be “highly significant.” Nomura has disclosed a loss of 2 billion and his compatriot Mitsubishi UFJ Financial Group has also been affected and is estimating what it will mean. For its part, Morgan Stanley and Goldman Sachs would have been quicker to ditch their Archengos commitments and Deutsche Bank, Wells Fargo and UBS would have managed to minimize losses.