[ad_1]
An unexpected wave of selling hit Wall Street last Friday: Shares of American media companies and Chinese tech companies were sold in large batches, in blocks, worth about $ 20 billion.
This type of trading at this value is rare in the US stock market, so a feverish investigation was launched over the weekend to find out what triggered the selloff. Earlier this week, it turned out that a private equity fund, Archegos Capital, was causing the sales after several investment banks asked for a margin call (that is, a family margin call from the film’s title) and as could not fulfill it, the Financing banks began to sell the shares as collateral.
Among other things, Archegos Capital owned a large number of shares in US media company ViacomCBS, which began to weaken early last week. This caused a serious loss in Archegos’ portfolio, and the financing banks saw Archegos as unable to get out of this situation, so they began to sell the guarantee packages in bulk. Goldman Sachs and Morgan Stanley sold a total of $ 19 billion in stock, and the companies involved in the sale fell in value about $ 33 billion on the day. Shares of mainly Chinese tech companies plummeted, but US companies also lost value.
Archegos managed the property for a single man, Bill Hwang. In the 1990s, Hwang started his career at Tiger Management, a legendary / infamous hedge fund manager in Wall Street history, led by Julian Robertson, and later launched his own fund manager called Tiger Asia Management. However, in 2012, several investors had to repay their money after it was revealed that they had obtained information on Chinese stocks through illegal means. As the Financial Times recalls, in 2012, Hwang was acquitted of insider trading proceedings in the United States after paying a $ 44 million fine, but was banned from trading in Hong Kong a few years later.
Basically, Archegos Capital was used to increase its own assets and according to the information known so far, Hwang worked specifically with high leverage, that is, he obtained serious loans in the course of trading. In addition, he traded in securities that were often suspected of being overvalued. It is no coincidence that the Financial Times analysis also writes that Hwang’s investment portfolio looked more
it was as if a small Reddites investor had access to the Goldman Sachs credit card and then got rid of it entirely.
This sort of thing is, of course, a pretty risky practice that can hardly be followed indefinitely – it turned out last week when you had to deal with one of the most valuable margin calls in Wall Street history, which you couldn’t even. get together.
Since these hedgehogs often trade behind the scenes, only the sold stock packages revealed what Hwang had invested in recently: Shares of big Chinese technologists and American media companies are also up a lot this year, but there were quite a few analysts who warned him for some time. that these stocks are highly overvalued.
Hwang fell huge in a matter of days: Mike Novogratz, an investment adviser who told Bloomberg, had been working in the American market since 1994, but as he told the newspaper, he had never seen anything like it: Hwang’s fortune fell in tens of billions of dollars in a matter of days, the largest personal loss of personal property in the history of the American economy.
Archegos’ website became inaccessible starting over the weekend, when a New York fund broker simply hung up when he learned he was being searched in the Financial Times. Finally, on Monday night, a company spokesperson said it was a serious and challenging period for Archegos Capital staff and partners, and Hwang and the team were working to figure out what to do next.
God didn’t help either
If it was just that there was a billionaire who had constantly appeared around risky and reckless transactions for decades and ended up falling for a big one, then perhaps financial players would have a lot more fun with what happened.
However, the Archegos Capital story has also highlighted quite serious systemic problems: It is still unclear how a large-scale private investor with such high risk and less transparency could be financed by large investment banks on such a scale. And while Goldman or Morgan Stanley seemed to be able to get out on time and out without a major loss, other banks weren’t that close to doing so well: Credit Suisse and Japan’s largest investment bank Nomura could also suffer billions of dollars. dollars in losses. , and both giants see that what happened could fundamentally affect their performance this year.
Although, according to the leaked news, representatives of the investment banks involved even negotiated with Archegos to avoid excessive market reactions through coordinated action, but in the end, shortly after the meeting, some banks began to sell. their actions, which made the process unmanageable on Friday morning’s part, and the banks not fast enough burned down.
Bankers and stock market analysts who have spoken out in recent days say it is confusing and incomprehensible why large investment banks have been involved in such large leveraged loans. Based on Bloomberg’s analysis, one explanation may be that Hwang’s private fund manager bought company shares in large batches through derivatives, so it wasn’t really possible to know what he was investing his money in. And Hwang was a highly successful trader for a long time, also bringing significant profits to investment banks, so despite knowing that he had previously been involved in suspicious transactions, they were still happy to work with him.
In addition, despite being listed in billions of dollars, Archegos Capital registered as a family trustee, so it did not have to provide a number of basic information to the US Stock Exchange. That is why the voices urging the regulation of family fund managers has been intensified again, since it was not about protecting the privacy of a small investor, but about processes that could affect the entire stock market. It is true that even the fact that they did not have to report important information to the stock market supervisor does not explain why investment banks did not shed more light on their clients.
Hwang was one of the richest people on Wall Street anyway, little was known about him, he hid his daily life in New York hiding from the public, giving very few interviews. Of his few speeches, many turned out to be religious, and a few years ago he spoke of his investments not only about money, but also about God’s long-term goals. He also talked about how much he loves his fund manager seeing what God is doing to the world through investment and capitalism.
How many similar stories are there?
So far, the signs suggest that since the collapse of Long-Term Capital Management in 1998, Archegos may be the biggest failure in the history of hedgefund managers.
And the real question, of course, is how common Hwang’s practice has been – how many hedgefund managers can work with such significant leverage – that is, trading billions borrowed primarily from investment banks rather than their own. own assets, in addition to derivatives where they often do. They do not even see from the outside what they are investing their money in.
According to the first quick scan, there is no fear that the collapse of Archegos will lead to a more serious immediate financial collapse, due to stricter rules, investment banks are now much more capitalized than in 2008, and at the moment Being this week , It seems that it did not sound much in the sell-off on Friday.
At the same time, it is conceivable that investment banks have learned from the case and are beginning to take a closer look at which hedge funds fund, under what conditions, and with what level of leverage. And if it turns out that there are many underfunded projects of similar risk, it could lead to new replenishment requests, which could even shake the whole hedgefund world and the equity markets with it.
[ad_2]
