Until recently, Bill Hwang was at the top of one of Wall Street’s biggest – and perhaps lesser known – fortunes. Then your luck ran out.
Hwang, a veteran 57-year-old investor, managed $ 10 billion through his private investment firm, Archegos Capital Management. He took billions of dollars from Wall Street banks to build huge positions in some American and Chinese stocks. In mid-March, Hwang was the financial force behind $ 20 billion in ViacomCBS shares, effectively making him the largest single institutional shareholder in the media company. But few knew of its total exposure, since the shares were mostly held through complex financial instruments, called derivatives, created by banks.
That changed in late March, after ViacomCBS ‘shares plummeted and creditors demanded their money. When Archegos was unable to pay, they confiscated their assets and sold them, leading to one of the biggest implosions of an investment company since the 2008 financial crisis.
Almost overnight, Hwang’s personal wealth has shrunk. It is a story as old as Wall Street itself, in which the right combination of ambition, intelligence and opportunity can generate fantastic profits – to collapse in an instant when conditions change.
“This whole case is indicative of the slack regulatory environment in recent years,” said Charles Geisst, a Wall Street historian. “Archegos has managed to hide its identity from regulators by leveraging through banks what must be the best example of shadow trading.”
The collapse of Hwang’s company had a ripple effect. Two of its bank creditors reported losses of billions of dollars. ViacomCBS saw its share price drop by half in a 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 supervision of family offices like Hwang’s – private investment vehicles for the wealthy who estimate they control several trillions. of dollars in assets. Others are asking for more transparency in the market for the types of derivatives sold to Archegos.
Mr. Hwang declined to comment for this article.
Yours is a proverbial American story from misery to wealth. Born in South Korea, Mr. 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. Within a year, his father, a pastor, died. He and his mother moved to Los Angeles, where he studied economics at the University of California, Los Angeles, but was distracted by the hustle and bustle of nearby Santa Monica, Hollywood and Beverly Hills.
“I always blame the people who established UCLA in such a cool neighborhood,” he told congregants of the Promise International Fellowship, a church in Flushing, Queens, in a 2019 speech. “I couldn’t go to school much, to be honest.”
He graduated – badly, he said – and did a master’s in business administration at Carnegie Mellon University in Pittsburgh. He then worked for about six years at a South Korean financial services company in New York, and ended up getting a great job as an investment advisor for Julian Robertson, the respected stock investor whose Tiger Management, founded in 1980, was considered a pioneer in hedge funds.
After Robertson closed the New York fund to outside investors in 2000, he helped sow Hwang’s own hedge fund, Tiger Asia, which focused on Asian stocks and grew rapidly, at one point managing $ 3 billion for investors. external.
Mr. Hwang was known to be big. He placed large, focused bets on shares in South Korea, Japan, China and elsewhere, using large amounts of borrowed money – or leverage – that could either overwhelm his returns or, in turn, destroy his positions.
He was more modest in his personal life. The home he and his wife, Becky, bought in upscale Tenafly NJ, is valued at about $ 3 million – humble by Wall Street standards. A religious man, Mr. Hwang founded the Grace and Mercy Foundation, a New York-based nonprofit organization that sponsors Bible readings and religious book clubs, increasing to $ 500 million in assets from $ 70 million in less than one of each. The foundation donated tens of millions of dollars to Christian organizations.
“He’s giving ridiculous amounts,” said John Bai, co-founder and managing partner of the equity research firm Fundstrat Global Advisors, who has known Hwang for nearly three decades. “But he is doing it in a very unassuming, humble and non-arrogant way.”
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But in his investment approach, he embraced risk and his company came into conflict 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 some Chinese shares.
In 2012, Mr. Hwang reached a civil settlement with US securities regulators in a separate insider investigation and was fined $ 44 million. That same year, Tiger Asia pleaded guilty to federal accusations of insider trading in the same investigation and returned the money to its investors. Mr. Hwang has been prevented from managing public money for at least five years. Regulators formally lifted the ban last year.
Shortly after closing Tiger Asia, Hwang opened Archegos, in honor of the Greek word for leader or prince. The new company, which also invested in American and Asian stocks, was similar to a hedge fund, but its assets were composed entirely of the personal wealth of Hwang and certain family members. The arrangement protected Archegos from regulatory scrutiny because of its lack of public investors.
Goldman Sachs, which had lent him at Tiger Asia, initially refused to do business with Archegos. JPMorgan Chase, another “top-tier broker” or major creditor for trading firms, also stayed away. But as the company grew, reaching more than $ 10 billion in assets, according to someone familiar with the size of its holdings, its attraction became overwhelming. Archegos was trading shares on two continents and banks were able to charge considerable fees for the trades they helped to organize.
Later, Goldman changed course and, in 2020, became a principal broker for the company alongside Credit Suisse and Morgan Stanley. Nomura also worked with him. JPMorgan refused.
Earlier this year, Hwang started liking a handful of shares: ViacomCBS, which placed high hopes on its nascent streaming service; Discovery, another media company; and Chinese shares, including electronic cigarette company RLX Technologies and education company GSX Techedu.
Listed at about $ 12 just over a year ago, ViacomCBS shares rose to about $ 50 in January. Hwang continued to accumulate his stake, people familiar with his operations said, through complex positions he arranged with banks, called “swaps”, which gave him economic exposure and returns – but not real ownership – of the shares.
By mid-March, as the stock rose to $ 100, Hwang had become ViacomCBS’s largest institutional investor, according to these people and a New York Times analysis of public records. The people valued the position at $ 20 billion. But, as Archegos ‘stake was reinforced by borrowed money, if ViacomCBS’ shares reversed unexpectedly, he would either have to pay the banks to cover the losses or be quickly liquidated.
On Monday, March 22, ViacomCBS announced plans to sell new shares to the public, a business that hoped to generate $ 3 billion in new cash to finance its strategic plans. Morgan Stanley was running the business. While bankers investigated the investor community, they counted on Hwang as the anchor investor who would buy at least $ 300 million in shares, said four people involved in the offer.
But sometime between the announcement of the deal and its completion that Wednesday morning, Hwang changed his plans. The reasons are not entirely clear, but RLX, the Chinese electronic cigarette company, and GSX, the education company, had soared in Asian markets at the same time. His decision meant that ViacomCBS ‘fundraising effort ended with $ 2.65 billion in new capital, significantly below the original target.
ViacomCBS executives were unaware of Hwang’s enormous influence on the company’s stock price, nor that he had canceled plans to invest in the stock offering, even after it was completed, said two people close to ViacomCBS. They were frustrated to learn that, people said. At the same time, investors who had received larger-than-expected stakes in the new stock offering and saw it below expectations were selling the shares, causing their price to fall further. (Morgan Stanley declined to comment.)
On Thursday, March 25, Archegos was in a critical condition. ViacomCBS ‘free falling stock price was generating “margin calls”, or demands for additional cash or assets, from its main brokers that the company was unable to fully address. Hoping to buy time, Archegos called a meeting with its creditors, asking for patience while silently unloading assets, said a person close to the company.
Those hopes were dashed. Feeling an impending failure, Goldman started selling Archegos’ assets the next morning, followed by Morgan Stanley, to recover the money. Other banks soon followed.
When ViacomCBS shares flooded the market that Friday because of huge bank sales, Hwang’s wealth plummeted. Credit Suisse, which acted very slowly to stem the damage, announced the possibility of significant losses; Nomura announced losses of up to $ 2 billion. Goldman concluded its position, but recorded no loss, said a person familiar with the matter. ViacomCBS shares have fallen more than 50 percent since it peaked on March 22.
Mr. Hwang was silent, issuing only a brief statement calling this a “challenging moment” for Archegos.
Kitty Bennett contributed research.