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One of the world’s greatest hidden fortunes is disappearing in a matter of days

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Ben Haung, perched on a hillside in the heart of Manhattan just outside of his hometown of Carnegie Hall, was quietly being built by Bill Hwang, one of the world’s greatest fortunes.

Even on Wall Street, few noticed him. Until suddenly everyone noticed.

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Hwang’s recent rise can be separated from the shares dropped by banks in recent days. ViacomCBS, Discovery, GSX Techedu, Baidu, which have already grown this year, sometimes confusing sellers who did not understand why.

Part of Hwang’s portfolio, which had been traded since Friday by Goldman Sachs Group, Morgan Stanley and Wells Fargo & Co., was worth nearly $ 40 billion last week. The bankers believe that Archegos’ net worth, in fact, Hwang’s fortune, reached $ 10 billion north. And since there are constant disputes, the assessments of the general position of his company continue to rise. Tens of billions, $ 50 billion, even more than $ 100 billion.

It evaporated in just a few days.

“I have never seen anything like it. “How calm it was, how focused it was, how quickly it disappeared,” said Mike Novogratz, a career macro investor and former Goldman Sachs trading partner who has been trading since 1994. “It must be one of the greatest losses of personal wealth in history.”

Late Monday night in New York, Archegos broke the silence of the episode.

“This is a difficult time for Archegos Capital Management’s family office, our partners and our employees,” company spokeswoman Karen Kessler said in an email. “All plans are being discussed as Mr. Hwang և’s team decides the best way forward.”

The trade loss cascade responded from New York to Tokyo, leaving unanswered questions, including the big one. ?

Part of the answer is that Huang was set up as a family office with limited control and then uses derivative financial instruments to accumulate large stakes in companies without ever revealing them. Another part is that the world’s banks accepted him as a profitable customer, despite the internal data-marketing manipulation that drove him out of the hedge fund business a decade ago.

Hedge fund legend Jul Ulyan Robertson’s student Sung Kook “Bill” Hwang closed down Tiger Asia Management և Tiger Asia Partners after the SEC’s civil litigation in 2012, accusing them of insider trading և Chinese bank shares in manipulating. Hwang վճար companies paid $ 44 million, he agreed to ban the investment consulting industry.

He soon opened Archegos, the Greek “one who leads”, and built it as a family office.

Family offices that have only one asset are generally exempt from being listed as an investment advisor on the US Securities and Exchange Commission. Thus, they should not reveal their owners, managers or how much they manage. Rules designed to protect outsiders investing in the fund. This approach makes sense for small family offices, but if they inflate to the point of stock, they can still pose risks, this time to outsiders in a wider market.

“This once again raises questions about the regulation of family offices,” said Tyler Gellash, a former SEC aide who now heads the Healthy Markets Business Group. “The question is, if it’s just friends and family, why are we interested? The answer is that they can have a significant impact on the market, and the SEC regulatory regime, even after Dodd-Frank, does not clearly reflect that. “

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Archegos has established business partnerships with firms including Nomura Holdings Inc., Morgan Stanley, Deutsche Bank AG and Credit Suisse Group AG. Some time later, after the SEC case, Goldman refused to trade on a compliance basis, but gave up because competitors were winning by meeting his needs.

The complete picture of his property is still being found out, it is not clear what positions went off the lines or what obstacles he created.

One reason is that Hwang never submitted his 13F Property Statement, which every investment manager with more than $ 100 million worth of shares must complete at the end of each quarter. This is due to the fact that he seems to have built his trades using general profitability exchanges, essentially positioning himself on the banks’ balance sheets. Exchanges also allow investors to add great leverage to their portfolio.

For example, Morgan Stanley և Goldman Sachs are listed as GSX Techedu, the largest owners of Chinese online teaching companies, which have repeatedly been targeted by short traders. Banks can hold shares for a variety of reasons, including the effect of a hedging swap of transactions with their customers.

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According to regulatory documents, Goldman increased its position by 54% in January. Overall, banks reported holding at least 68% of GSX’s outstanding shares, according to Bloomberg. The banks owned at least 40% of IQIYI Inc., a Chinese video entertainment company, and 29% of ViacomCBS, all of which Archegos bet on.

“I’m sure there are a number of really unhappy investors who have bought these names in the last few weeks,” Doug Siphon Bloomberg, chief executive of Virtu Financial, said on Monday. He predicted that regulators would consider “should there be more transparency և disclosure by the family office?”

Without the need to market his fund to outside investors, Hwang’s strategy and performance were kept secret from the outside world. Even when his fortune swelled, 50 things were low. Although he once worked for Robertson’s Tiger Management, he was not well known on Wall Street or in New York City.

Hwang is the trustee of the Fuller Theology Seminary, co-founder of the Grace and Mercy Foundation, whose mission is to serve the poor and oppressed. According to the latest application, the fund had assets approaching $ 500 million at the end of 2018.

“It’s not all about the money, you know,” he said in a rare 2018 interview with one of the leaders of the Fuller Institute, in which he spoke about his calling as an investor – the Christian faith. “It’s about the long term. God, of course, has a long-term view.”

His fortune reversed early last week when ViacomCBS announced a secondary bid for its shares. Its stock price fell 9% the next day.

The value of other securities presumably in Archegos’ portfolio is based on the positions traded.

At the end of Thursday, the value of the portfolio fell by 27%, which was more than the liquidation of the investor, which, according to market participants, was reduced by six to eight times.

It has also hurt some banks that serve Hwang. Nomura and Credit Suisse have warned of “significant” losses following the sale, and Mitsubishi UFJ Financial Group has estimated a possible loss of $ 300 million.

“One has to think about who is there with one of those invisible fortunes,” said Novograts. “The psychology of all these levers, without risk management, is almost nihilism.”

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