Archegos Capital Management is a family office run by Bill Hwang, it recently blew up after being forced to sell its assets by its lenders. After borrowing a lot of money from several financial institutions, they held almost $110bn in stocks despite only having around $20bn. This resulted in numerous banks suffering heavy losses, most notably Credit Suisse and Nomura.
Who is Bill Hwang?
Bill Hwang is not an especially well known personality in the financial world, despite having an interesting past. He is a Korean-American immigrant, he completed his undergrad in Economics from UCLA and an MBA from Carnegie Mellon University. He left university and went into work for the famous hedge fund Tiger Management, in the late 1990s he started his own fund called Tiger Asia Management, which saw strong returns for its investors. However, in 2012, Tiger Asia was involved in a public scandal over insider trading and had to pay fines to the SEC amounting to over $60m. Both The firm and Bill Hwang himself were also banned from trading in Hong Kong. After this happened, Bill Hwang returned all outside capital and changed the company name to Archegos. He is a devout Christian, he founded the Grace and Mercy Foundation, he also has donated millions of dollars to different charities.
What is a family office?
A family office is a private wealth management advisory firm set up to manage the investments of ultra-high net worth investors (UHNW)(1)
. In a similar way to hedge funds, they invest in multiple financial instruments from stocks, bonds to other more exotic products. They typically try to combine both short term and long term investments to get the best returns. Every individual and their family has a firm that serves solely them, although there are also multi-family offices that serve a few families in order to benefit from economies of scale. In Bill Hwang’s case, he has set it up to invest his own money. The regulations imposed on family offices are weaker than the regulations imposed on hedge funds. Bill Hwang took advantage of this in leveraging his investments heavily through borrowing money from banks such as Credit Suisse and Goldman Sachs. This meant taking a lot more risk, but also increasing the possibility of his returns.