Bill Hwang borrowed heavily from Wall Street banks to become the single largest shareholder in ViacomCBS. Then the price dropped. Photo / Getty Images
Banks were eager to do business with Bill Hwang and his Archegos Capital Management — until he ran out of money.
Until recently, Bill Hwang sat atop one of the biggest — and perhaps least-known — fortunes on Wall Street. Then his luck ran out.
Hwang, a 57-year-old veteran investor, managed US$10 billion ($14 billion) through his private investment firm, Archegos Capital Management. He borrowed billions of dollars from Wall Street banks to build enormous positions in a few American and Chinese stocks. By mid-March, Hwang was the financial force behind US$20 billion in shares of ViacomCBS, effectively making him the media company's single largest institutional shareholder. But few knew about his total exposure, since the shares were mostly held through complex financial instruments, called derivatives, created by the banks.
That changed in late March, after shares of ViacomCBS fell precipitously and the lenders demanded their money. When Archegos could not pay, they seized its assets and sold them off, leading to one of the biggest implosions of an investment firm since the 2008 financial crisis.
Almost overnight, Hwang's personal wealth shrivelled. It is a tale as old as Wall Street itself, where the right combination of ambition, savvy and timing can generate fantastic profits — only to crumble in an instant when conditions change.
"That whole affair is indicative of the loose regulatory environment over the last several years," said Charles Geisst, a historian of Wall Street. "Archegos was able to hide its identity from regulators by leveraging through banks in what has to be the best example of shadow trading."
The meltdown of Hwang's firm had ripple effects. Two of his bank lenders have revealed billions of dollars in losses. ViacomCBS saw its share price halved in a week. The Securities and Exchange Commission opened a preliminary inquiry into Archegos, two people familiar with the matter said, and market watchers are calling for tougher oversight of family offices like Hwang's — private investment vehicles of the wealthy that are estimated to control several trillion dollars in assets. Others are calling for more transparency in the market for the kind of derivatives sold to Archegos.
Hwang declined to comment for this article.
His is a proverbial American rags-to-riches story. Born in South Korea, 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, had died. He and his mother moved to Los Angeles, where he studied economics at UCLA, but he found himself distracted by the excitement of nearby Santa Monica, Hollywood and Beverly Hills.
"I always blame people who set up UCLA in such a nice neighbourhood," he told congregants at Promise International Fellowship, a church in Flushing, a neighbourhood in the New York City borough of Queens, in a 2019 speech. "I couldn't go to school that much, to be honest."
He graduated — barely, he said — and pursued a master's degree in business administration at Carnegie Mellon University, in Pittsburgh. He then worked for about six years at a South Korean financial services firm in New York, eventually landing a plum job as an investment adviser for Julian Robertson, a respected stock investor whose Tiger Management, founded in 1980, was considered a hedge fund pioneer.
After Robertson closed the New York fund to outside investors in 2000, he helped seed Hwang's own hedge fund, Tiger Asia, which focused on Asian stocks and quickly grew, at one point managing US$3 billion for outside investors.
Hwang was known for swinging big. He made large, concentrated bets on shares in South Korea, Japan, China and elsewhere, using ample amounts of borrowed money — or leverage — that could both supercharge his returns or, in turn, wipe out his positions.
He was more modest in his personal life. The house that he and his wife, Becky Hwang, bought in Tenafly, New Jersey, an upscale suburb, is valued at about US$3 million, which is humble by Wall Street standards. A religious man, Hwang established the Grace and Mercy Foundation, a New York-based nonprofit that sponsors Bible readings and religious book clubs, growing it to US$500 million in assets from US$70 million in under a decade. The foundation has donated tens of millions of dollars to Christian organisations.
"He's giving ridiculous amounts," said John Bai, a co-founder and managing partner of the equity research firm Fundstrat Global Advisors, who has known Hwang for roughly three decades. "But he's doing it in a very unassuming, humble, non boastful way."
But in his investing approach, he embraced risk, and his firm ran afoul of regulators. In 2008, Tiger Asia lost money when investment bank Lehman Brothers filed for bankruptcy at the peak of the financial crisis. The next year, Hong Kong regulators accused the fund of using confidential information it had received to trade some Chinese stocks.
In 2012, Hwang reached a civil settlement with US securities regulators in a separate insider trading investigation and was fined US$44 million. That same year, Tiger Asia pleaded guilty to federal insider trading charges in the same investigation and returned money to its investors. Hwang was barred from managing public money for at least five years. Regulators formally lifted the ban last year.
Shortly after shuttering Tiger Asia, Hwang in 2013 opened Archegos, which is Greek for leader or prince. The new firm, which also invested in both US and Asian stocks, was similar to a hedge fund, but its assets were made up entirely of Hwang's personal wealth and that of certain family members. The arrangement shielded Archegos from regulatory scrutiny because of its lack of public investors.
Goldman Sachs, which had lent to him at Tiger Asia, initially refused to deal with Archegos. JPMorgan Chase, another "prime broker," or large lender to trading firms, also stayed away. But as the firm grew, eventually reaching more than $10 billion in assets, according to someone familiar with the size of its holdings, its lure became irresistible. Archegos was trading stocks on two continents, and banks could charge sizable fees on the trades they helped arrange.
Goldman later changed course and in 2020 became a prime broker to the firm alongside Credit Suisse and Morgan Stanley. Nomura also worked with him. JPMorgan refused.
By the beginning of this year, Hwang had grown fond of a handful of stocks: ViacomCBS, which had pinned high hopes on its nascent streaming service; Discovery, another media company; and Chinese stocks, including e-cigarette company RLX Technologies and education company GSX Techedu.
Trading at roughly US$12 just over a year ago, ViacomCBS' stock rose to about $50 by January. Hwang kept amassing his stake, people familiar with his trading said, through complex positions he arranged with banks called "swaps," which gave him the economic exposure and returns — but not the actual ownership — of the stock.
By mid-March, as the stock moved toward US$100, Hwang had become the single largest institutional investor in ViacomCBS, according to those people and a New York Times analysis of public filings. The people valued the position at US$20 billion. But because Archegos' stake was bolstered by borrowed money, if ViacomCBS shares unexpectedly reversed, he would have to pay the banks to cover the losses or be quickly wiped out.
On March 22, ViacomCBS announced plans to sell new shares to the public, a deal it hoped would generate US$3 billion in new cash to fund its strategic plans. Morgan Stanley was running the deal. As bankers canvassed the investor community, they were counting on Hwang to be the anchor investor who would buy at least US$300 million of the shares, four people involved with the offering said.
But sometime between the deal's announcement and its completion the morning of March 24, Hwang changed plans. The reasons are not entirely clear, but RLX and GSX had both spiralled in Asian markets around the same time. His decision caused the ViacomCBS fundraising effort to end with US$2.65 billion in new capital, significantly short of the original target.
ViacomCBS executives had not known of Hwang's enormous influence on the company's share price, nor that he had canceled plans to invest in the share offering, until after it was completed, two people close to ViacomCBS said. They were frustrated to hear of it, the people said. At the same time, investors who had received larger-than-expected stakes in the new share offering and had seen it fall short were selling the stock, driving its price down even further. (Morgan Stanley declined to comment.)
By March 25, Archegos was in critical condition. ViacomCBS' plummeting stock price was setting off "margin calls," or demands for additional cash or assets, from its prime brokers that the firm could not fully meet. Hoping to buy time, Archegos called a meeting with its lenders, asking for patience as it unloaded assets quietly, a person close to the firm said.
Those hopes were dashed. Sensing imminent failure, Goldman began selling Archegos' assets the next morning, followed by Morgan Stanley, to recoup their money. Other banks soon followed.
As ViacomCBS shares flooded onto the market March 26 because of the banks' enormous sales, Hwang's wealth plummeted. Credit Suisse, which had acted too slowly to stanch the damage, announced the possibility of significant losses; Nomura announced as much as $2 billion in losses. Goldman finished unwinding its position but did not record a loss, a person familiar with the matter said. ViacomCBS shares are down more than 50% since hitting their peak March 22.
Hwang has lain low, issuing only a short statement calling this a "challenging time" for Archegos.
Written by: Kate Kelly, Matthew Goldstein, Matt Phillips and Andrew Ross Sorkin
Photographs by: Kristian Thacker and Emon Hassan
© 2021 THE NEW YORK TIMES
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