A little-known private investment firm with estimated total Friday positions of over $100 billion saw its wealth evaporate Monday, damaging large investment banks.
“Archegos Capital Management,” a firm set up as a family office to reportedly bypass regulation, did not meet its margin commitments, CNN reported. This led to a forced liquidation of its positions worth $20 billion, an enormous shock that plunged the stocks of ViacomCBS ( ) and Discovery ( ) by more than 25%.
A flurry of huge block trades were initiated by Goldman Sachs and Morgan Stanley Friday after Archegos Capital Management failed to meet margin calls.@kgreifeld examines what prompted the move and the aftermath for markets https://t.co/1iwZ1xW25B (via @Quicktake) pic.twitter.com/hTvrKVYwmB
— Bloomberg (@business) March 30, 2021
A number of global banks, including Credit Suisse, Goldman Sachs, Morgan Stanley and Deutsche Bank may have lost the total of $6 billion due to the massive sell-out, according to Al Jazeera. (RELATED: Survey: Investors Fear Inflation More Than COVID-19)
Archegos Capital Management was founded by Bill Hwang in 2013, CNBC reported. Just a year prior to that, Hwang pleaded guilty to insider trading of Chinese bank stocks and paid $44 million as a settlement for the charges from the Securities and Exchange Commission (SEC), the report says.
Hwang agreed at the time to be barred from the investment advisory industry, and setting up a family office helped circumvent the prohibition, according to Yahoo Finance.
The investment firm’s portfolio fell Friday by 27%, which is believed to have wiped out Hwang’s $10 billion wealth. A former partner at Goldman Sachs, Mike Novogratz, described the downfall as “one of the single greatest losses of personal wealth in history.”
“This does raise questions about the regulation of family offices once again,” a former SEC aide, Tyler Gellasch, told Yahoo. The SEC’s current regulatory regime is incommensurate with the financial impact family offices have, he said.
“We have been monitoring the situation and communicating with market participants since last week,” said a spokesperson for the SEC, following the accusation of lack of regulation.