• September 21, 2023

‘This has to be one of the single greatest losses of personal wealth in history,’ says stock-market pro of Archegos margin call

Wall Street may have seen muted action on Tuesday, but investors were still raving about the highly indebted false bet reportedly being used by Bill Hwang’s Archegos Capital Management, which may have many banks losing billions of dollars has burdened.

Archegos, pronounced “Ar-chee-gos” by the company, maintained positions in stocks such as ViacomCBS Inc. using derivatives.
MORE, + 7.24%,
Discovery Inc.
DISC, + 9.73%,
and GSX Techedu
GSX, + 9.77%,
and was hit by margin calls when the direction of those high-flyers turned against the family office.

The stock decline, with ViacomCBS and Discovery stocks posting their worst falls yet, forced the banks Archegos loaned the money execute complex derivatives trades asking the fund to raise more money or to handle the stakes.

Losses at Archegos have more than triggered the liquidation of massive equity positions Worth $ 30 billion, referred to as block trades, wrote the Wall Street Journal. However, some say the Hwang Fund’s exposure to financial markets approached $ 100 billion.

A Wall Street veteran, Michael Novogratz of Galaxy Digital and a former hedge fund manager, was quoted as saying Bloomberg News as an offer of this unreserved assessment of the Archegos losses:

“I’ve never seen anything like it – how quiet it was, how focused, and how quickly it went away,” he said. “This must be one of the greatest losses in personal wealth in history,” said Novogratz.

A call to Hwang at the Archegos New York offices was not returned immediately, but the investment company did provide a comment through a spokeswoman.

“This is a challenging time for the Archegos Capital Management family office, our partners and employees. All plans are discussed while Mr. Hwang and the team determine the best way forward, ”she said.

The liquidation of Archegos may also affect Credit Suisse Group AG and Nomura Holdings Inc., which suggests that the recent market turmoil could cause them to suffer significant losses without specifically naming the fund.

The Wall Street Journal reported that Mitsubishi’s UFJ Financial Group Inc. securities business also said it could lose $ 300 million on its exposure to a U.S. client without naming the company behind the losses.

On Tuesday the Dow Jones Industrial Average
DJIA, -0.43%,
the S&P 500 index
SPX, -0.50%
and the Nasdaq Composite Index
COMP, -0.42%
all traded slightly lower, and Discovery and ViacomCBS stocks rose sharply.

It’s not clear how much money Hwang will lose, as his fund has reportedly managed around $ 10 billion, a fraction of his reported equity exposures. Hwang was a student of legendary investor Julian Robertson, who ran Tiger Management and whose alumni are known as the Tiger Cubs.

In 2012, Hwang Tiger Asia, which he founded in 2001, transformed into his family office, renamed it Archegos and changed its structure to a family office. The change came after Tiger Asia pleaded guilty to fraud charges and agreed to pay $ 44 million to resolve civil allegations by U.S. securities regulators of insider trading in Chinese bank stocks. WSJ reported at the time.

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