The next day the financial community seems to have already forgotten. The Stock Exchanges committed to breaking new records have filed the billionaire losses of the Archegos fund to run in search of new records. The upward tension on bonds and the strengthening of the dollar indicate a residual fear after the small earthquake which cost the banks around twenty billion, as much as it went up in smoke on Friday evening in the great mess of "margin calls" not honored by Bill Hwang, the family office developer who rocked Wall Street for a weekend or so. A minor character, Hwang. Not a star of the Olympus of hedge funds, but an emigrant from South Korea who has nothing to do with the identikit of the financial market sharks. Indeed, probably for the first time in the history of financial crashes, the figure of the bankrupt in search of holiness appears. Because, as he stated, his ambition was to "be a great investor, but on behalf of God".
It is difficult to imagine a character more distant from Gordon Gekko than Mr. Hwang: "I'm like a child - he wrote on Linkedin - who every day tries to know what he can do, where he can invest to honor the Lord”. From his tax returns, it reads on Wall Street Journal, emerges the portrait of a benefactor who has paid over the last few years substantial sums to sponsor Christian churches, both in South Korea and for the benefit of Asian communities in the US. “I am gradually reducing my assets to do the things the Lord asks of me – she said in an interview in 2018 – Why am I doing it? I love God more than my money”. In short, a missionary of money, converted to good works after having run into the shirts of the SEC: I confess to insider trading, had to settle in 2012 with the stock exchange authority paying $44 million to avoid jail time. But this is the story of the years of "sin", when Bill Hwang, who emigrated from South Korea after high school, had the good fortune, after graduating, to enter the circle of collaborators of Julian Robertson, the mythical founder of the Tiger Fund , capable of creating a $22 billion behemoth from almost nothing.
Hwang also, with Robertson's help, he founded his own hedge as a boy in 2001, capable of accumulating a wealth of 5 billion dollars. Before falling into temptation and repenting, as well as paying the hefty fine for breaking the law on insiders, which under US law indicates the obligation to abstain from trading on the financial markets. How is this possible, asks today the Financial Times, that such a character, moreover almost unknown, arrives at move securities up to 50 billion dollars with the collaboration of the most important banks? It is possible, also because after the conviction Hwang was able to give customers back every last dollar.
And then, to get back on the scene, he used a new formula, promoting a family office which, by its nature, cannot raise funds from third parties. Finally, certainly our Bill was able to count on his knowledge and, above all, on his ability, an indisputable quality given that in less than ten years Archegos has gone from one hundred million to over ten billion. And she distributed along the way hefty fees to banks who financed his rise. The last to succumb to the charm of the missionary of the price list was Goldman Sachs, which only a year ago removed it from the black list "due to the pressing recommendations that came from many quarters": today the bank is keen to clarify that last Friday it did not hesitate, together with Morgan Stanley, to overturn Hwang's securities on the market in deposit.
Yep, Archegos' position was total return swap contracts, derivatives similar to the more common credit defaults, but with a more complex structure which, in our case, has made it possible to have huge financial leverage (up to 20 times, it seems, for some transactions), and guarantee market anonymity. It seems, and perhaps it is true, that none of Hwang's counterparts suspected they were dealing with the operator who single-handedly pushed the stock of Viacom CBS (the main American TV network) to double in value within a few months. Total return swaps, very much in vogue among activist funds precisely because of the characteristic of allowing anonymity to be maintained, have proved to be a lethal weapon in the hands of Hwang.
According to the first reconstructions, the small (for the size of the US market) family office held by a financier convicted by the SEC, was able collect up to 50 billion credits from at least ten leading banks, including Swiss institutes (also ubs), the inevitable Deutsche Bank, the Japanese Nomura and the most exclusive US banks. The contracts entered into by Hwang typically stipulated a leverage of eight. That is, for each guarantee given, the manager could operate seven times more. But there are much higher leverage examples (up to 20x).
In short, the Archegos default is intended to have limited effect because banks today are well capitalized. But also because, unlike at the time of the Lehman crash or of Ltcm at the time of the Russian crisis, the markets today live in a state of grace in which even a billion-dollar crash is quite easy to digest. Especially if at the origin there is a solitary fish that does not boast particular relationships or prestige. But the system, once again, proved to be leaking, despite the massive investments in risk management and the stricter rules imposed after the 2008/09 crisis.
