Collapse of little-known firm causes havoc on Wall Street
Bill Hwang used to be known inside a restricted community of investors and bankers. He started his career on Wall Street as an equity analyst at Tiger Management, the hedge fund powerhouse founded by legendary Julian Robertson. However, a gifted apprentice outpaced his teacher.
Robertson himself drained his fund in the early 2000s. Later on, having invested part of his own fortune, he established dozens of new hedge funds and put some of his former associates in charge. Bill Hwang was nicknamed a “Tiger cub” like other alumni of Tiger Management. He ran a firm for Robertson for a while. Then, he founded his own investment company, Archegos Capital, to manage his personal wealth. As a rule, such family businesses are exempt from registration as investment consulting firms with the US Security and Exchange Commission (SEC). They do not have to report their owners, CEOs, and the size of assets. In short, they do not have to obey the rules imposed by the SEC. So, staying out of the spotlight, Bill Hwang was accumulating a solid fortune slowly but surely.
Importantly, an investment portfolio of such a family office sometimes swells to the size of a large hedge fund. In this case, it poses a threat to other market participants. Archegos Capital is no exception. The fund’s own capital topped $10 billion while the leveraged funds were as big as $30 billion. Among its lenders were major Wall Street banks such as Goldman Sachs, Morgan Stanley, Deutsche Bank, Credit Suisse, and even Nomura.
One day in late March, a series of margin calls entailed an implosion of Archegos Capital. The collapse of the little-known investment firm left a trail of destruction among top-ranking international banks. Hwang leveraged up his bets using huge borrowed money. As a result of his financial fiasco, banks incurred multi-billion losses. He defaulted on loans and lost all his personal wealth.