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Stock futures rise as Wall Street shakes off Archego’s jitter


One of the world’s largest hidden fortunes is being wiped out in days

(Bloomberg) – From his perch high above Midtown Manhattan, opposite Carnegie Hall, Bill Hwang quietly built one of the world’s greatest fortunes. Even on Wall Street, few people ever noticed him – until suddenly everyone did. His private investment company, Archegos Capital Management, is now at the center of one of the biggest margin calls of all time ̵

1; a multi-billion dollar failure involving secret market games that were dangerously exploited and rolled out in an instant. be gathered from stocks dumped by banks in recent days – ViacomCBS Inc., Discovery Inc. GSX Techedu Inc., Baidu Inc. – which had all risen this year, sometimes confusing traders who could not understand why. of Hwang’s portfolio, which has been traded in blocks since Friday by Goldman Sachs Group Inc., Morgan Stanley and Wells Fargo & Co., was worth nearly $ 40 billion last week. Bankers estimate that Archego’s net worth – essentially Hwang’s fortune – had reached $ 10 billion north. And as sales continue to grow, estimates of the company’s total positions continue to climb: tens of billions, $ 50 billion, even more than $ 100 billion. It evaporated in a few days. “I’ve never seen anything like it – how quiet it was, how concentrated, and how fast it disappeared,” said Mike Novogratz, a career macro investor and former partner at Goldman Sachs who has been trading since 1994. “This has to be one of the “This is a challenging time for the family office of Archegos Capital Management, our partners and staff,” said Karen Kessler, a spokeswoman for the firm, in an email statement. “All plans are discussed as Mr. Hwang and the team decide the best way forward.” The cascade of trade losses resonates from New York to Zurich to Tokyo and beyond, leaving countless unanswered questions, including the big one: How could some take such huge risks, facilitated by so many banks, under the noses of regulators around the world? Part of the answer is that Hwang started as a family office with limited supervision and then used financial derivatives to amass large shares in companies without ever having to disclose them. Another part is that global banks embraced him as a lucrative customer, despite an overview of insider trading and attempted market manipulation that drove him out of the hedge fund business a decade ago. A disciple of hedge fund legend Julian Robertson, Sung Kook “Bill” Hwang closed Tiger Asia Management and Tiger Asia Partners after settling a civil lawsuit in 2012, accusing them of insider trading and manipulating Chinese banks’ shares. Hwang and the companies paid $ 44 million, and he agreed to be banned from the investment advisory industry. He soon opened Archegos – Greek for “one who leads”, and structured it as a family office. Family offices that exclusively manage a fortune are generally exempt from registering as an investment adviser with the US Securities and Exchange Commission. So they do not have to disclose their owners, managers or how much they manage – rules designed to protect outsiders who invest in a fund. This approach makes sense for small family offices, but if they swell to the size of a hedge fund whale, they can still pose a risk, this time to outsiders in the wider market. “This raises the question of family office regulation again,” said Tyler Gellasch, a former SEC assistant who now runs the Healthy Markets trading group. “The question is, if it’s just friends and family, why do we care? The answer is that they can have significant market effects, and the SEC’s regulatory regime even after Dodd-Frank did not clearly reflect it. Suisse Group AG Some time after the SEC case, Goldman refused to do business with him on the basis of compliance, but added as competitors who were served to cover his needs.The full picture of his portfolio still remains, and it is not clear which positions were tracked or which hedges he had set up.One reason is that Hwang never filed a 13F report on his holdings, as each investment manager who owns more than $ 100 million in US stocks has to fill in at the end of each quarter, this is because he seems to have structured his trades using total return swaps, and mainly pl assess the positions on the banks’ balance sheets. Swaps also allow investors to add a lot of influence to a portfolio. Morgan Stanley and Goldman Sachs, for example, are listed as the largest owners of GSX Techedu, a Chinese online guidance company that has been repeatedly targeted by card sellers. Banks can own shares for a number of reasons, including hedging exchange exposures from trades with their customers. ‘Unhappy investors’ Goldman increased its position by 54% in January, according to regulations. Overall, banks reported holding at least 68% of GSX’s outstanding shares, according to a Bloomberg analysis of the archives. Banks owned at least 40% of IQIYI Inc, a Chinese video entertainment company, and 29% of ViacomCBS – which Archegos had invested heavily in. “I’m sure there are a number of really dissatisfied investors who have bought these names. in the last couple of weeks, “and now regret it, said Doug Cifu, CEO of the electronic trading company Virtu Financial Inc., in an interview on Bloomberg TV on Monday. He predicted that regulators would investigate whether “there should be more transparency and disclosure of a family office.” Without the need to market its fund to external investors, Hwang’s strategies and performance remained secret from the outside world. Even when wealth swelled, the 50s kept a low profile. Although he once worked for Robertson’s Tiger Management, he was not known on Wall Street or in social circles in New York. Wang is a trustee of Fuller Theology Seminary, and co-founder of the Grace and Mercy Foundation, whose mission is to serve the poor and oppressed. According to the foundation, the fund had assets approaching $ 500 million by the end of 2018. “It’s not just about the money, you know,” he said in a rare interview with a 2018 Fuller Institute leader, talking about his calling as a investor and his Christian faith. “It’s about the long term, and God certainly has a long-term vision.” His extraordinary fortune passed early last week when ViacomCBS Inc. announced a secondary offer for the shares. The stock price plunged 9% the next day. The value of other securities that are assumed to be in Archegos’ portfolio based on the positions that were blocked followed. At the end of Thursday, the value of the portfolio fell by 27% – more than enough to wipe out the equity of an investor who estimates that market participants were six to eight times the amount. “You have to wonder who else is out there with one of these invisible fortunes,” Novogratz said. “The psychology of anyone who exploits without risk management is almost nihilism.” (Adds comment from Archegos in paragraph 8.) For more articles like this, visit us at bloomberg.com. Subscribe now to stay ahead of the most trusted business news source. © 2021 Bloomberg LP

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