Home Money How Did Bill Hwang and Archegos Lose $20 Billion In 2 Days?

How Did Bill Hwang and Archegos Lose $20 Billion In 2 Days?

Bill Hwang Archegos

Bill Hwang – a hedge fund manager and experienced stock trader – had amassed billions of dollars through stock trading over the years. But reportedly he has lost all his wealth within a matter of just two days. The record loss was due to a defaulting on loans he had taken to invest after the share price of a company in his portfolio had nose-dived.

Hwang is a South Korean native who had immigrated to the US in 1982. His original name was Sung Kook Hwang but he changed it to Bill Hwang probably to adjust better to his new home country. He completed his MBA degree from Carnegie Mellon University and started work as a salesman. His major career breakthrough came in 1996 when he was hired as an analyst at Tiger Management – a hedge fund company established in 1980.

Bill Hwang’s Rise to Financial Stardom

At Tiger Management, Hwang was responsible for investing money received from clients to hedge against the unfavorable market condition.  Colleagues say that he had an impressive work ethic. He kept his desk clean and organized so that he can focus on the job at hand. They say that Robertson the owner of Tiger Management had called him the Michael Jordan of investing in Asia.

In 2000, he established his own hedge fund management company called Tiger Asia Management. According to an article in New York Times, Hwang created his company after his boss had decided to stop serving investors outside the US.

Hwang’s Tiger Asia mainly specialized in tech and media shares of companies in Asia. He was able to attract wealthy clients located in Asia. At one time, his company managed assets of up to $10 billion belonging to foreign investors.  The annual returns through 2007 were a record 40 percent, allowing the company to gain wealth and reputation.

But things started to go downhill by 2012 for Hwang after his firm was found guilty of insider trading by the US security regulators. Moreover, Hwang had also pleaded guilty to wire fraud while representing Hwang Asia. The loss in reputation along with the trading losses in the aftermath of the 2008 financial crisis had also hit the revenues of the company. His business empire soon collapsed and he had to close the Tiger Asia Asset Management company. 

The Rebirth of a Financial Empire

Hwang established a new company Archegos Capital Management in 2013. He had lost all his clients and started from scratch. The company was formed to manage his wealth of about $500 million. Hwang focused on the US stock market having been banned from trading in Hong Kong and other major markets in Asia.

Bill Hwang Meltdown

Hwang soon rebuilt his reputation as his company started making winning trades. Lenders were eager to lend money to him again due to investment success. His portfolio included big names such as Facebook, LinkedIn, Amazon, and Netflix. He was able to build a portfolio of $100 billion with the loans obtained from the bank and his net worth grew to $20 billion. At one time, the net worth had briefly touched $30 billion according to a Bloomberg article.

Archegos – a Greek word that means captain – had built a sizeable portfolio in less than a decade. Hwang was able to gain more leverage with each success. Banks were willing to extend him credit eager to be a part of his lucrative business.

With the success of Archegos, Hwang was able to fund his charity named Grace & Mercy Foundation that had about $500 million in assets in 2018.

The Fall Once Again

Hwang had built an impressive portfolio and amassed great wealth in a quick time. But there was one problem with his success model. The portfolio was financed through billions in loans.  In other words, the financial empire was built on credit that is nothing more than a spider’s web. His loss of about $20 billion in just 2 days has been described by Bloomberg as one of the most remarkable failures in modern history. 

The 57-year old veteran stock trader would not have lost the record sum if he had folded the business in March 2021. Experts say that the reason for the record loss in wealth was that most of it were tied to a liquid asset. In contrast, the wealth of billionaires is mostly in real estate, sports teams, businesses, and artwork.

What Happened?

Hwang’s company Archegos had defaulted on credit it had obtained to fund the billion-dollar portfolio. The company had bought shares of ViacomCBS for $20 billion. His company became the largest single shareholder firm of the media company. But after the shares of ViacomCBS had nose-dived last month, banks demanded that Archegos repay the loan.  The company was not able to repay the loan due to which the bank took ownership of the assets and sold the company that wiped Hwang’s net worth of about $20 billion.

The net worth of Hwang could not have happened if the banks that extended loans to Hwang negotiated a deal.  According to an article on Bloomberg, it was a preventable disaster caused by the banks that extended credit to Hwang.

Hwang’s losses could have been lower if Hwang would have not used so much leverage. Moreover, he would not have had to sustain record losses if the veteran trader demanded more visibility regarding the operations of the businesses he had invested. 

Experts also blame the security regulator that did not do enough to encourage greater transparency regarding business trades.

The story about the record fortune and the mind-boggling demise serves as a warning for other investors. It shows the risk of using too much leverage to fund investment. The estimated size of the disaster is about $100 billion that has far implications for major credit institutions.

The Security and Exchange Commission (SEC) has started an investigation of the incident. It would be months before the cause of the disaster and the implications will be known to a full extent.


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