He Built a $10 Billion Investment Firm. It Fell Apart in Days.

Until recently, Bill Hwang sat on one of the greatest – and perhaps least known – fortunes on Wall Street. Then his luck ran out.

Mr. Hwang, a 57-year-old veteran investor, managed $ 10 billion through his private investment firm Archegos Capital Management. He borrowed billions of dollars from Wall Street banks to build huge positions in some American and Chinese stocks. By mid-March, Mr. Hwang was the financial force behind $ 20 billion worth of ViacomCBS stock. This made him the largest single institutional shareholder in the media company. Few knew of his overall exposure as the shares were held primarily through complex financial instruments called derivatives, created by the banks.

That all changed in late March after ViacomCBS’s shares fell sharply and lenders began demanding their money. When Archegos couldn’t pay, they confiscated its assets and sold them, resulting in one of the biggest implosions for an investment firm since the 2008 financial crisis.

Almost overnight, Mr. Hwang’s personal wealth dwindled. It’s a story as old as Wall Street itself, where the right combination of ambition, skill, and timing can generate fantastic profits – only to collapse in a moment when conditions change.

“This whole matter is an indication of the loose regulatory environment in recent years,” said Charles Geisst, a Wall Street historian. “Archegos was able to hide its identity from regulators using the best example of shadow trading through banks.”

The collapse of Mr. Hwang’s company had ripples. Two of his bank lenders have reported losses in the billions. At ViacomCBS, the share price has halved within a week. The U.S. Securities and Exchange Commission has opened a preliminary investigation into Archegos, two people familiar with the matter, and market observers are calling for closer scrutiny of family offices like Mr. Hwangs – the wealthy’s private investment vehicles that control an estimated trillion dollars in assets. Others are calling for more transparency in the market for the types of derivatives being sold to Archegos.

Mr. Hwang declined to comment on the article.

It’s a proverbial American story from rags to riches. 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 the University of California at Los Angeles, but was distracted by the excitement of nearby Santa Monica, Hollywood, and Beverly Hills.

“I always blame people who started UCLA in such a beautiful neighborhood,” he said in a 2019 speech to parishioners for the Promise International Fellowship, a church in Flushing, Queens. “I couldn’t go to school that often, to be honest.”

He barely graduated, he said, with a Masters of Business Administration from Carnegie Mellon University in Pittsburgh. He then worked for about six years at a South Korean financial services company in New York and finally got a plum job as an investment advisor for Julian Robertson, the respected stock investor whose Tiger Management, founded in 1980, was considered a pioneer of hedge funds.

After Mr. Robertson closed the New York Fund to outside investors in 2000, he helped found Mr. Hwang’s own hedge fund, Tiger Asia, which was focused and growing rapidly in Asian stocks, and at one point managed $ 3 billion for outside investors Investors.

Mr. Hwang was known to swing big. He made big, focused bets on stocks in South Korea, Japan, China and elsewhere, using copious amounts of borrowed money or leverage to add to his returns or destroy his positions.

He was more humble in his personal life. The house he and his wife Becky bought in an upscale suburb of Tenafly, New Jersey, is worth about $ 3 million – modest by Wall Street standards. A religious man, Mr. Hwang founded the Grace and Mercy Foundation, a New York-based nonprofit that sponsors Bible reading and religious book clubs, growing its net worth from $ 70 million to $ 500 million in less than a decade. The foundation has donated tens of millions of dollars to Christian organizations.

“He gives ridiculous amounts,” said John Bai, co-founder and managing partner of equity research firm Fundstrat Global Advisors, who has known Mr. Hwang for about three decades. “But he does it in a very humble, humble, not boastful way.”

In business today

Updated

April 2, 2021, 3:58 p.m. ET

However, he took risks in his investment approach and his company violated regulators. In 2008, Tiger Asia lost money when the investment bank Lehman Brothers filed for bankruptcy at the height of the financial crisis. The next year, Hong Kong regulators accused the fund of using confidential information obtained to trade some Chinese stocks.

In 2012, Mr. Hwang reached a civil settlement with US securities regulators in a separate insider trading investigation and was fined $ 44 million. That same year, Tiger Asia pleaded guilty to federal insider trading fees in the same investigation and returned money to its investors. Mr. Hwang was banned from managing public funds for at least five years. The supervisory authorities officially lifted the ban last year.

Shortly after Tiger Asia closed, Mr. Hwang Archegos, named after the Greek word for leader or prince, opened. The new company, which invested in both US and Asian stocks, resembled a hedge fund, but its assets consisted entirely of the personal assets of Mr. Hwang and certain family members. The deal protected Archegos from regulatory scrutiny due to a lack of public investors.

Goldman Sachs, who had loaned him to Tiger Asia, initially refused to deal with Archegos. JPMorgan Chase, another prime broker or large retail company lender, also stayed away. But as the company grew, eventually reaching more than $ 10 billion in net worth, its lure became irresistible to someone familiar with the size of its holdings. Archegos traded stocks on two continents, and banks could charge substantial fees for the deals they helped create.

Goldman later changed course and became a prime broker for the company alongside Credit Suisse and Morgan Stanley in 2020. Nomura also worked with him. JPMorgan refused.

Earlier this year, Mr. Hwang had loved a handful of stocks: ViacomCBS, which had high hopes for its emerging streaming service; Discovery, another media company; and Chinese stocks, including e-cigarette company RLX Technologies and education company GSX Techedu.

ViacomCBS traded at around $ 12 a little over a year ago and rose to around $ 50 by January. Mr. Hwang continued to amass his stake, said people familiar with his trading, through complex positions he arranged with banks called “swaps,” which gave him economic exposure and returns – but not actual ownership – the share provided.

By mid-March, when the stock moved toward $ 100, Mr. Hwang had become the single largest institutional investor in ViacomCBS, according to these individuals and a New York Times analysis of public filings. People valued the position at $ 20 billion. However, since Archegos’ stake was backed by borrowed money, it had to pay the banks to cover the losses or be quickly wiped out if ViacomCBS shares unexpectedly reversed.

On Monday March 22nd, ViacomCBS announced plans to sell new shares to the public. The deal hoped to generate $ 3 billion in new cash to fund its strategic plans. Morgan Stanley carried out the deal. When bankers wooed the investing community, they reckoned that Mr. Hwang would be the anchor investor who would buy at least $ 300 million of the stock, said four people involved in the offer.

But sometime between the announcement of the deal and its closing on Wednesday morning, Mr. Hwang changed his plans. The reasons are not entirely clear, but RLX, the Chinese e-cigarette company, and GSX, the education company, had developed in Asian markets around the same time. His decision resulted in ViacomCBS’s fundraiser ending up with $ 2.65 billion in new capital, well below the original target.

ViacomCBS executives were unaware of Mr. Hwang’s tremendous impact on the company’s share price, nor that he had canceled plans to invest in the stock offering until two people close to ViacomCBS said it was closed. They were frustrated to hear about it, people said. At the same time, investors who had received a higher-than-expected participation in the new share offering and discovered that it fell short, sold the share, which lowered the price even further. (Morgan Stanley declined to comment.)

On Thursday March 25th, Archegos was in critical condition. ViacomCBS’s falling share price triggered “margin calls” or demands for additional cash or assets from its prime brokers, which the company was unable to meet in full. Hoping to buy time, Archegos convened a meeting with its lenders and asked for patience while it quietly unloaded assets, said a person close to the company.

These hopes were dashed. Sensing the impending failure, Goldman began selling Archegos’ assets the next morning, followed by Morgan Stanley to get their money back. Other banks soon followed.

When ViacomCBS stock hit the market that Friday due to the massive sales by the banks, Mr. Hwang’s fortune plummeted. Credit Suisse, which acted too slowly to calm the damage, announced the possibility of substantial losses. Nomura announced losses of up to $ 2 billion. Goldman finished dissolving his position but made no loss, said a person familiar with the matter. ViacomCBS stock has fallen more than 50 percent since its peak on March 22nd.

Mr. Hwang calmed down and only made a brief statement describing this as a “challenging time” for Archegos.

Kitty Bennett contributed to the research.

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