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How to Lose $20 Billion in Two Days - YouTube
Channel: Bloomberg Quicktake: Originals
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It is my great joy and privilege
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to introduce Bill Hwang.
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Can we please welcome Bill Hwang up here.
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Please welcome Bill Hwang.
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The question of who is Bill Hwang
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is one that everyone seems
to be asking right now.
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Here is someone who really
was not on anyone's radar,
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and yet he was ranking among
the world's wealthiest people.
[32]
But now Bill Hwang and what
has happened to his firm
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will likely go down in 2021
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as one of the most remarkable
stories of the year.
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Not just because of the rapid rise,
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but the even faster implosion.
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He was an outsized influence
on financial markets,
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but almost nobody had ever heard his name
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and nobody had ever heard
the name of his firm.
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Archegos Capital Management.
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This whole situation to me
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is like a string of "Are
you F-ing kidding me?"
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How could that many
prime brokers be so dumb
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as to lever up one guy
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all on the same stocks?
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It really is every bank for themselves
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at this point.
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It was this one family office
that caused so much mayhem.
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It was Bill Hwang's personal fortune
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which he had built into a firm
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that was pretty sizable in the market.
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One way to measure this fiasco
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is by adding up Bill
Hwang's losses, $20 billion,
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to the $10 billion that
the banks have lost.
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In total you've got $30 billion wiped out
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in the space of a week.
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Investors on Wall Street
lose money all the time,
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but Archegos is almost
unique in financial history
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because of the size of the positions
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that a single individual accumulated
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and the speed with which it unraveled.
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This is one of the most
spectacular failures
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in modern financial history.
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No individual has lost
so much money so quickly.
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My entry point to the Archegos
story was Goldman Sachs.
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Very early on,
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Goldman emerged as a seller
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of almost $10 billion of securities,
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on a Friday, dumping stock onto the market
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in a way that was exceedingly
rare, almost unprecedented.
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And any time I see the name Goldman Sachs,
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I'm always curious.
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And so I went down the
Goldman Sachs rabbit hole
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and found out some interesting details
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about Goldman's relationship
with this firm, Archegos,
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and the man behind it, Bill Hwang.
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It really goes back to
the final days of March
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when you had this frenzy of
block trades hitting the market.
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There were a bunch of
big Chinese tech names,
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US media conglomerates,
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and across the board we were
seeing the stocks falling.
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Everyone in the market
was trying to figure out
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what the heck was going on.
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Bill Hwang's background is very different
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from anyone else that you've heard of
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at the pinnacle of Wall Street.
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Here is someone who grew up
in a family of modest means
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in South Korea.
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His father was a pastor,
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he was assigned to a church in Las Vegas,
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and Bill Hwang and his family
moved to the United States
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when he was about 18 years old in 1982.
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Within a few months of his arrival,
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his father passed away.
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He used to work night
shifts at McDonald's.
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And it was on his mother's insistence
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that he go to college,
that he attended UCLA
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and subsequently earned a business degree
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at Carnegie Mellon.
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Back in the late '80s and early '90s,
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it wasn't so easy to get to Wall Street
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if you were an immigrant.
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He couldn't get a job at Goldman Sachs,
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he couldn't get a job at Morgan Stanley,
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yet his dream was to
come to New York City.
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So Bill Hwang ended up taking
a job at Hyundai Securities,
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and he turned out to be a
very good security salesman
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at Hyundai Securities
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because he caught the
attention of Julian Robertson.
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We have work.
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Julian Robertson is the
famous hedge fund manager
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who founded the powerhouse
firm, Tiger Management.
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And so Bill Hwang became a Tiger Cub.
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The term Tiger Cub is used to describe
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the former employee's
disciples, if you like,
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of Julian Robertson.
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Anyone who sort of worked
with Julian Robertson
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had great success under him
[286]
and then was able to spin out
[287]
and start their own hedge fund
or their own investing firm
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came to be known as a Tiger Cub.
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Julian Robertson seeded
Bill Hwang's hedge fund,
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and that's what gave Tiger Asia its stock.
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Bill Hwang's hedge fund, Tiger Asia,
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was a very, very successful firm.
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At one point, it managed $10 billion.
[313]
But Tiger Asia crossed the line
[315]
between aggressive and illegal.
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In 2012, securities
regulators across the world
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accused the firm of insider trading.
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Bill Hwang had to plead guilty
on behalf of his hedge fund
[327]
for wire fraud.
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He had to shut down Tiger Asia.
[332]
But after he settled that,
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and he shut down his hedge fund,
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he started Archegos.
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Archegos is what's known
as a family office.
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It's an investment firm managing
money for an individual,
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in this case, Bill Hwang,
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but instead of trying to
start a new hedge fund
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with the taint of a securities violation,
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he would take the money that he had,
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something north of $200
million at the time,
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and invest his own money,
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hire his own analysts, do his own work,
[360]
and make money that way
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instead of having to
make money for clients.
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And he was incredibly successful.
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He did a couple of things
that worked very well
[369]
in his favor.
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The first was he invested in tech stocks.
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He rode the decade-long boom
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in firms like Amazon, LinkedIn, Expedia.
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Netflix, Facebook, Google.
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The other thing he did, increasingly,
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was use borrowed money.
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On Wall Street, it's called leverage.
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He had borrowed a lot of money,
[391]
and that meant his gains were exacerbated.
[394]
And he then plowed them
all back into the same bet
[397]
that by the end of it
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you had someone who had taken a fortune
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that started at a little over 200 million
[402]
and in under seven years had
taken it to over $20 billion.
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Jesus says, "I'm the bread of life.
[417]
If you come to me, you
never be hungry again."
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Bill Hwang was someone who
was devoted to his church,
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who was focused on the idea of
spreading the word of Christ.
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Your people will be my people,
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and your God will be my God.
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He believed that, by
investing in these companies,
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he was advancing society on behalf of God.
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My company does a little bit of our part
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bringing the fair price
to Google stock price.
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Is it important to God?
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Absolutely.
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In some ways, he was able
to find a justification
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for all his wagers,
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to stick with them and
to double down on them,
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irrespective or not being mindful
[463]
of the hedges he would
have had to have in place.
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He talks about this idea that
everyone else on Wall Street
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is burdened by the
thought of being powerful
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and having too much money.
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And he says he doesn't feel it.
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He says he's not afraid of death or money.
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He says, "I am just following God's word,
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and that is truly a
fearless way to invest."
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He didn't live large.
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He didn't have a penthouse
apartment in New York city.
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He didn't have a fancy
vacation home in the Hamptons.
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He lived a relatively modest
life in suburban New Jersey.
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He drove a Hyundai SUV.
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This is really a grown up version
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of someone you will see on
Wall Street Bets or Robinhood.
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This is someone who really
likes a stock or two or three,
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would bet on it, and stick with it,
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and not worry about anything else.
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There was no complicated
investing strategy here.
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God has clearly showed us what money does
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in a positive way.
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Here's someone was is
completely driven by faith,
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who completely believed in
the right of what he was doing
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and allowed that to
become the driving force,
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not allowing any sort of
distraction for self-doubt
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or even second thought
in what he was doing.
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And that proved to be his undoing.
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On the afternoon of March 22nd,
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ViacomCBS announced a stock
and convertible bond sale.
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The company wanted to raise $3 billion.
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Here was a stock Bill Hwang
was really invested in.
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He had a huge outsize position in it.
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Every time the stock moved up,
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he would throw more money into it
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and the stock would keep
going up and up and up and up.
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Instead of helping the stock,
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the stock sale hurt the stock terribly.
[578]
The following day, ViacomCBS went down 9%.
[582]
On the Wednesday, it went down 23%.
[584]
With the stock declining
that far, that fast,
[587]
it forced a margin call.
[589]
A margin call is a demand
by Wall Street firms
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for more collateral.
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If you borrowed so much money
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that all of a sudden
there's no equity left,
[599]
after a stock drops that quickly,
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the firm will demand more collateral.
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If Bill Hwang has no money left
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or refuses to put up any further money,
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the dealing firm takes over his position.
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The Wall Street dealers
pleaded with Bill Hwang
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to sell some stock so that
he would at least survive.
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He might take some losses.
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From $20 billion,
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he might go down to 10
or perhaps even less,
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but he would live to fight another day.
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And Bill Hwang refused.
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If it was just one bank making the demand,
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that might have been fine.
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When all his banks made the same demand,
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you knew you had a problem,
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and really that was the beginning
of the end for Bill Hwang.
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Any fortune built on borrowed money
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is standing on a shaky base.
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A gust of wind could threaten it.
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In the case of Bill Hwang,
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he was facing down a hurricane.
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Names that he had plowed
billions of dollars into
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were moving against him,
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and he never had any effective hedge.
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The banks had started to panic,
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they had loaned him a lot of money,
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and they were demanding
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that he needs to post a lot more cash;
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otherwise, they would have
to terminate the agreement
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and liquidate his portfolio.
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He did not have enough
spare cash lying around
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and they did have to cut their ties
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and liquidate his entire portfolio.
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In the end, Bill Hwang lost at all.
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But not just that.
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The banks that had lent him money,
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they also lost quite the fortune.
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Think of Archegos as a burning building
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and its bank lenders as
the people trapped inside.
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The moment one of those people,
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one of those banks makes
a break for the exit,
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all hell breaks loose.
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You had someone like Credit
Suisse losing $5.5 billion.
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Nomura in Japan losing in
excess of $2.5 billion.
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And yet you had banks like Goldman Sachs,
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Wells Fargo, Deutsche Bank
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who seem to have escaped
this largely unscathed.
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In total, you've got $30 billion wiped out
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in the space of a week.
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The last person out of
the burning building
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is the one who always
sustains the greatest damage.
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In this case, that was Credit Suisse.
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It was only in the days after that,
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that we were able to piece
together what really happened
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and the root cause behind it all.
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A whale is Wall Street slang
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for someone who wields outsized influence
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in financial markets.
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It's like looking at the ocean
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and seeing a glass-like surface,
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but under the surface is this
enormous, enormous creature.
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That's what Bill Hwang
was like to Wall Street.
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He was an invisible whale.
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Almost nobody had ever heard his name
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and nobody had ever heard
the name of his firm.
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And that all goes back
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to this financial instrument that he used,
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which was swaps.
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Now what are swaps?
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Swaps are a type of derivative
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that allows you to
effectively remain invisible.
[800]
Instead of your name showing
up in securities filings,
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it's the name of the firm you're
dealing with that shows up.
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So it could be Credit Suisse.
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It could be Goldman Sachs.
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It could be Deutsche Bank.
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It's the banks that appear
as the stockholders,
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and he was the one
benefiting from the move
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in the price of the stock.
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And that would allow
him to remain anonymous
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through that process.
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The people familiar with Archegos,
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both its accounts and its positions,
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spoke to us on the condition of anonymity
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because they weren't
authorized to comment.
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"We don't really have a good idea
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of what Bill Hwang has left.
[835]
We know he's got a suburban
home in New Jersey.
[838]
We know he drove a Hyundai.
[840]
Presumably he's still got that.
[842]
But we're not aware of
any other investments
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that he may have had."
[846]
But with so little financial
disclosure available,
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it's very difficult for anybody
to have a really solid idea
[853]
of what Bill Hwang has
left after this collapse.
[862]
The only saving grace, perhaps,
from this entire fiasco,
[866]
is that we really haven't
seen a systemic problem.
[869]
We really haven't seen
banks almost pullback risk,
[874]
expose more hedge funds to the problems
[877]
and see more dominoes falling.
[881]
However, what is the
lesson that we all learn
[884]
from what happened to Archegos?
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So far, the prime brokerage business
[889]
hadn't been top of mind for regulators,
[891]
hadn't been top of mind for politicians,
[893]
but you've had both entities
jumping into the fray,
[897]
for now demanding answers,
[899]
for now trying to figure out
[900]
how stable and sound the system was.
[903]
You don't want these
invisible whales out there
[907]
who have great outsize holdings and stock
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and no one knows about it.
[911]
So the same disclosure rules
that apply for hedge funds
[915]
will possibly be the case going
forward for family offices.
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Bill Hwang has undoubtedly suffered
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some reputational damage
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as a result of the collapse of his firm.
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And it's hard not to see
the irony in this story.
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On the one hand,
[930]
you've got Bill Hwang, the
pillar of his church community,
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and on the other,
[934]
you have this guy who's
making wildly speculative bets
[939]
with enormous amounts of borrowed money.
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It's so hard to bring
those two people together
[945]
into the same person,
[947]
which is why we keep
asking ourselves, "Why?"
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