How Bill Hwang’s $ 10 billion investment firm collapsed in days
Until recently, Bill Hwang was at the top of one of Wall Street’s most important – and perhaps least known – fortunes. Then his luck ran out.
Hwang, a seasoned 57-year-old investor, has managed $ 10 billion through his private investment firm, Archegos Capital Management. He borrowed billions of dollars from Wall Street banks to build huge positions in a few US and Chinese stocks. In mid-March, Hwang was the financial force behind $ 20 billion in shares of ViacomCBS, making him the largest institutional shareholder in the media company. But few knew his full exposure, as stocks were mostly held through complex financial instruments, called derivatives, created by banks.
That changed in late March, after shares in ViacomCBS fell precipitously and lenders demanded their money. When Archegos couldn’t pay, they seized its assets and sold them, which led to one of the biggest implosions of an investment firm since the 2008 financial crisis.
Almost overnight, Hwang’s personal wealth withered away. It’s a tale as old as Wall Street itself, where the right combination of ambition, skill, and timing can generate fantastic profits – only to collapse in an instant when conditions change.
“This whole thing is indicative of the loose regulatory environment over the past few years,” said Charles Geisst, a Wall Street historian. “Archegos was able to hide his identity from regulators by taking advantage of the banks in what must be the best example of parallel trading.”
The collapse of Hwang’s business had a ripple effect. Two of its bank lenders have disclosed billions of dollars in losses. ViacomCBS saw its price drop by half in one week. The Securities and Exchange Commission has opened a preliminary investigation into Archegos, two people familiar with the matter said, and market watchers are calling for tighter oversight of family offices like Hwang’s – private investment vehicles of the wealthy believed to be ‘They control several trillions of dollars in assets. . Others are asking for more transparency in the market for the type of derivative products sold in Archegos.
Hwang declined to comment for this article.
Hers is a proverbial American story of rags to wealth. Born in South Korea, Hwang moved to Las Vegas in 1982 as a high school student. He spoke little English and his first job was as a cook at a McDonald’s on the Strip. In less than a year, his father, a pastor, was dead. He and his mother moved to Los Angeles, where he studied economics at UCLA, but found himself distracted by the excitement of nearby Santa Monica, Hollywood and Beverly Hills.
“I always blame the people who made UCLA in such a beautiful neighborhood,” he told worshipers at Promise International Fellowship, a church in Flushing, a neighborhood in the Borough of Queens in New York City, in a speech from 2019. “I couldn’t go to school so much, to be honest.”
He graduated – barely, he says – and pursued a master’s degree in business administration at Carnegie Mellon University in Pittsburgh. He then worked for about six years at a South Korean financial services firm in New York City, before landing a privileged job as an investment advisor for Julian Robertson, a respected investor whose Tiger Management, founded in 1980, was considered. as a pioneer of hedge funds.
After Robertson closed the New York fund to outside investors in 2000, he helped seed Hwang’s own hedge fund, Tiger Asia, which focused on Asian stocks and growing rapidly, at one point managing 3 billion dollars for outside investors.
Hwang was known to swing big. He made large, focused bets on stocks in South Korea, Japan, China and elsewhere, using large amounts of borrowed money – or leverage – that could both supercharge his returns or, in turn, annihilate its positions.
He was more modest in his personal life. The house that he and his wife, Becky Hwang, bought in an upscale suburb Tenafly, New Jersey, is valued at around $ 3 million, which is modest by Wall Street standards. A religious man, Hwang established the Grace and Mercy Foundation, a New York-based nonprofit that sponsors Bible readings and religious book clubs, bringing it to $ 500 million in assets, from $ 70 million. in less than a decade. The foundation has donated tens of millions of dollars to Christian organizations.
“He’s giving ridiculous amounts of money,” said John Bai, co-founder and managing partner of equity research firm Fundstrat Global Advisors, which has known Hwang for about three decades. “But he does it in a very modest, humble, non-bragging way.
But in his approach to investing, he embraced risk and his company clashed with regulators. In 2008, Tiger Asia lost money when investment bank Lehman Brothers filed for bankruptcy at the height of the financial crisis. The following year, Hong Kong regulators accused the fund of using confidential information it had received to trade certain Chinese stocks.
In 2012, Hwang reached a civil settlement with U.S. securities regulators in a separate insider trading investigation and was fined $ 44 million. That same year, Tiger Asia pleaded guilty to federal insider trading charges in the same investigation and returned money to its investors. Hwang was banned from managing public money for at least five years. Regulators officially lifted the ban last year.
Shortly after shutting down Tiger Asia, in 2013 Hwang opened Archegos, which in Greek means chief or prince. The new company, which also invested in US and Asian stocks, was akin to a hedge fund, but its assets were made up entirely of Hwang’s personal wealth and that of some members of his family. The arrangement shielded Archegos from regulatory scrutiny due to its lack of public investors.
Goldman Sachs, who loaned him to Tiger Asia, initially refused to deal with Archegos. JPMorgan Chase, another prime broker, or major lender to trading companies, has also stayed on the sidelines. But as the company grew, eventually reaching over $ 10 billion in assets, according to someone familiar with the size of its holdings, its allure became irresistible. Archegos traded stocks on two continents, and banks could charge large fees on the transactions they helped organize.
Goldman then changed course and in 2020 became a prime broker of the company alongside Credit Suisse and Morgan Stanley. Nomura also worked with him. JPMorgan refused.
Earlier this year, Hwang had focused on a handful of stocks: ViacomCBS, which had placed high hopes on its fledgling streaming service; Discovery, another media company; and Chinese stocks, including electronic cigarette company RLX Technologies and education company GSX Techedu.
Trading at around $ 12 a little over a year ago, ViacomCBS stock rose to around $ 50 in January. Hwang continued to build up his stake, people familiar with his trading said, through complex positions he arranged with banks called “swaps,” which gave him economic exposure and returns – but not. beneficial ownership – of the share.
By mid-March, with the stock advancing towards $ 100, Hwang had become ViacomCBS’s largest institutional investor, according to these people and a New York Times analysis of public filings. People valued the position at $ 20 billion. But since Archegos’ stake was bolstered by borrowed money, if ViacomCBS shares unexpectedly reversed, he would have to pay the banks to cover the losses or be quickly wiped out.
On March 22, ViacomCBS announced its intention to sell new shares to the public, a deal it hoped would generate $ 3 billion in new cash to fund its strategic plans. Morgan Stanley was running the business. As the bankers polled the investment community, they were counting on Hwang to be the benchmark investor who would buy at least $ 300 million in shares, four people involved in the offer said.
But sometime between the deal’s announcement and its completion on the morning of March 24, Hwang changed his plans. The reasons aren’t entirely clear, but RLX and GSX both exploded in Asian markets around the same time. His decision ended ViacomCBS’s fundraising effort with $ 2.65 billion in new capital, well below the original target.
ViacomCBS executives were not aware of Hwang’s enormous influence on the company’s stock price, nor that he had canceled his intention to invest in the stock offering, until that it is finished, said two people close to ViacomCBS. They were frustrated to hear about it, people said. At the same time, investors who received larger stakes than expected in the new stock offering and saw it fail were selling the stock, which lowered its price even further. (Morgan Stanley declined to comment.)
On March 25, Archegos was in critical condition. The fall in ViacomCBS ‘stock price triggered “margin calls”, or demands for additional cash or assets, from its major brokers, which the company could not fully meet. Hoping to save time, Archegos called a meeting with his lenders, asking for patience as he quietly offloaded his assets, a person close to the company said.
These hopes have been dashed. Sensing imminent failure, Goldman began selling Archegos’ assets the next morning, followed by Morgan Stanley, to get their money back. Other banks quickly followed suit.
As shares of ViacomCBS poured into the market on March 26 due to huge bank sales, Hwang’s wealth plummeted. Credit Suisse, which had acted too slowly to stem the damage, announced the possibility of significant losses; Nomura has announced losses of up to $ 2 billion. Goldman has finished unwinding its position but has not recorded a loss, a person familiar with the matter said. Shares of ViacomCBS have fallen more than 50% since their peak on March 22.
Hwang stayed low, only issuing a brief statement calling it “a tough time” for Archegos.