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