The man who lost $20 bn in two days

Bill Hwang was the biggest trader you'd never heard of before he lost it all—all $20 billion.

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He turned more than $200 million left over from his defunct hedge fund into a staggering fortune by betting on stocks starting in 2013. Hwang, 57, would have stood out from the world's billionaires if he had folded his hand and cashed in in early March. Hwang's net worth of $20 billion was almost as solvent as a government stimulus check. Then it vanished in a matter of days.

The collapse of Hwang's Archegos Capital Management in late March was one of the most dramatic financial disasters in recent history: no person has ever lost so much money in such a short period of time. Hwang's fortune peaked at $30 billion at one point, reports Bloomberg.

Archegos was never included in the securities filings that reveal major stockholders, whether on purpose or by mistake. Hwang used swaps, a form of derivative that allows an investor to profit or lose money on an underlying asset without actually buying it. This disguised his identity as well as the scale of his positions.

That's why on Friday, March 26, when investors around the world learned that a company called Archegos had defaulted on loans used to build a staggering $100 billion portfolio, the first question was, "Who on earth is Bill Hwang?" Because he was using borrowed money and levering up his bets fivefold, Hwang's collapse left a trail of destruction. Banks dumped his holdings, savaging stock prices. Credit Suisse Group AG, one of Hwang's lenders, lost $4.7 billion; several top executives, including the head of investment banking, have been forced out. Nomura Holdings Inc. faces a loss of about $2 billion.

Hwang is anything but the larger-than-life figure one might expect at the center of a financial fiasco. There's no penthouse overlooking Manhattan's Central Park, no hillside chalet at the Yellowstone Club, no private jets. "I grew up in a pastor's family. We were poor," he said in a video recorded at New Jersey's Metro Community Church in 2019. "I confess to you, I could not live very poorly. But I live a few notches below where I could live."

Hwang owns a suburban New Jersey home and drives a Hyundai SUV. His is the paradoxical story of a man devoted to his church and driven to give generously, with a consuming taste for casinolike risk in his professional life. For now, Hwang isn't saying why he played such a dangerous game, and neither are his bankers. But pieces of the puzzle are falling into place.

Modest on the outside, Hwang had all the swagger he needed inside the Wall Street prime-brokerage departments that finance big investors. He was a "Tiger cub," an alumnus of Tiger Management, the hedge fund powerhouse that Julian Robertson founded. In the 2000s, Hwang ran his own fund, Tiger Asia Management, which peaked at about $10 billion in assets.

It didn't matter that he'd been accused of insider trading by US securities regulators or that he pleaded guilty to wire fraud on behalf of Tiger Asia in 2012. Archegos, the family office he founded to manage his personal wealth, was a lucrative client for the banks, and they were eager to lend Hwang enormous sums.

On March 25, when Hwang's financiers were finally able to compare notes, it became clear that his trading strategy was strikingly simple. Archegos appears to have plowed most of the money it borrowed into a handful of stocks—ViacomCBS, GSX Techedu, and Shopify among them. This was no arbitrage on collateralized bundles of obscure financial contracts. Hwang invested the Tiger way, using deep fundamental analysis to find promising stocks, and he built a highly concentrated portfolio. The denizens of Reddit's WallStreetBets day trading on Robinhood can do almost the same thing, riding such popular themes as cord cutting, virtual education, and online shopping. Only no brokerage will extend them anywhere near the amount of leverage billionaires get.

To anyone who asked, Hwang liked to say he divided his time evenly among three passions: his family, his business, and his charity, the Grace & Mercy Foundation. "I try to invest according to the word of God and the power of the Holy Spirit," Hwang said in a 2019 video for his foundation. "In a way it's a fearless way to invest. I am not afraid of death or money."

Sung Kook Hwang immigrated to the US from South Korea in 1982 and took the English name Bill. Raised by his widowed mother, he attended the University of California at Los Angeles and eventually earned an MBA at Carnegie Mellon University. At a videotaped business school reunion that was posted online in 2008, Hwang recounted his one objective upon graduation: moving to New York. In 1996, after stints as a salesman at two securities firms, he landed an analyst's job at Tiger Management.

Working for Robertson, a titan of the industry, was like playing for the New York Yankees. Many of Hwang's colleagues at the time went on to start several of the world's most successful hedge funds, including Andreas Halvorsen's Viking Global Investors, Philippe Laffont's Coatue Management, and Chase Coleman's Tiger Global Management.

As Hwang recalled at the reunion, Robertson taught him a key lesson: to live with losses. At one point, Tiger had burned through $2 billion in a wrong-way bet against the Japanese yen, and "everyone was panicking." Robertson entered the room and, according to Hwang, said, "Guys, calm down. It's only work. We do our best."

When Tiger closed in 2001, Robertson urged Hwang to start a fund and offered to seed it with capital. In the early days, both Tiger Asia and Coleman's Tiger Global were on the same floor at Robertson's Park Avenue offices. Hwang and Coleman would sometimes have lunch together to share views on the market. One former Tiger Asia employee remembers Hwang returning one day. He and Coleman had decided against paring back some investments amid market volatility. "I think Chase and I are very similar. We need to go on the offense," Hwang said, according to the former employee.

None of Hwang's former colleagues or employees agreed to be named speaking about him. Some remain friends and don't want to appear disloyal. Others are constrained by pledges of confidentiality. The people familiar with Archegos, both its accounts and positions, spoke on the condition of anonymity because they weren't authorized to comment.

Hwang initially sought to differentiate himself by investing only in Korean, Japanese, and Chinese companies that generated all of their revenue domestically. Former clients and colleagues say Hwang concentrated the Tiger Asia portfolio in a small number of stocks and levered it. Some of his 25 or so positions were longs (bets on rising prices)and some were shorts (bets on declining prices). And he was secretive, often concealing particularly large holdings from his own analysts, the former employee says. He'd repeat these patterns years later at Archegos.

In 2008, Tiger Asia was shorting Volkswagen AG when takeover speculation sent the shares soaring. The stock quadrupled in two days, and Hwang had to close his position at a loss. He ended the year down 23%, and many investors pulled out, furious that an Asia-focused fund was gambling in European markets.

At least once, Hwang stepped over the line between aggressive and illegal. In 2012, after years of investigations, the US Securities and Exchange Commission accused Tiger Asia of insider trading and manipulation in two Chinese bank stocks. The agency said Hwang "crossed the wall," receiving confidential information about pending share offerings from the underwriting banks and then using it to reap illicit profits.

Hwang settled that case without admitting or denying wrongdoing, and Tiger Asia pleaded guilty to a US Department of Justice charge of wire fraud. His mother, who'd become a missionary in Tijuana, Mexico, called to ask about the penalties. Hwang recounted the moment in a 2016 talk in South Korea. When he informed her that the fines and disgorgements totaled more than $60 million, she replied, "Oh, dear. You did well, Sung Kook. Our America is going through a difficult time. Consider the amount you are paying as a tax." He had to close the fund.

In 2013, Hwang started Archegos as a family office. There were no outside investors this time, only his money. Some friends, thinking back, figured he wanted to prove himself after the SEC settlement. Others saw no interest in redemption. Risk-taking is to Hwang as basketball is to LeBron James, something in his nature.

Although little known on Wall Street, Hwang has been a pillar of his church community. His Grace & Mercy Foundation gave millions of dollars a year to mostly Christian causes. The Fuller Foundation and Fuller Theological Seminary in Pasadena, Calif., and Washington's Museum of the Bible are two of its biggest beneficiaries. Others, in New York, include the Bowery Mission and the King's College, a Christian liberal arts school.

Hwang hosted three Scripture readings a week at his foundation offices in Midtown Manhattan—a 6:30 p.m. dinner on Monday, a 12:30 p.m. lunch on Wednesday, and a 7 a.m. breakfast on Friday. He paid for another at Metro Community Church, too. Between listening to scripture and reading himself, Hwang said he spent at least 90 hours over the course of every year digesting the entire Bible.

Hwang is closely involved with a group called Liberty in North Korea, or Link, that has helped about 1,300 North Koreans escaping the regime. "He doesn't use God as a cover," says Jensen Ko, a colleague at Archegos. "He lives that out."

In February 2016, Hwang's name appeared on an invitation emailed to members of the Financial Services Ministry, a group affiliated with New York's Redeemer Presbyterian Church that connects Christians in finance. It advertised a weekend retreat at the Princeton Theological Seminary "to explore the Gospel's power to transform who we are and what we have been called to do in this industry." The highlight was a dinner on a Saturday with three of the ministry's advisers: Cathie Wood, whose ARK Investments was then a startup money manager; Paul Gojkovich, a former director at Merrill Lynch; and Hwang.

For a while, Wood and Hwang shared a similar trajectory. As Archegos piled up winning trades outside the public eye, she became an investing sensation. Wood's flagship exchange-traded fund, a technology-heavy portfolio open to any retail investor, wowed the market with a 148% return in 2020. Hwang is also one of Wood's investors, and, according to one of his former employees, Archegos and ARK collaborated on industry research. ARK declined to comment.

The seminary retreat offered a glimpse of how Hwang reconciled faith with finance. One person who attended recalls talking to him about the Archegos portfolio, which then included Amazon.com, Facebook, LinkedIn, and Netflix. As Hwang explained it, cutting-edge companies were doing divine work by advancing society. He told congregants in his 2019 appearance at Metro Community that God loved Alphabet Inc.'s Google because it provided "the best information to everybody." Archegos had owned the stock for five years. "God also cares about fair price, because the scripture said God hates wrong scales," Hwang says in the video, invoking the multiple references to just weights and balances in the Old Testament. "My company does a little bit, our part, bringing a fair price to Google stock. Is it important to God? Absolutely."

US rules prevent individual investors from buying securities with more than 50% of the money borrowed on margin. No such limits apply to hedge funds and family offices. People familiar with Archegos say the firm steadily ramped up its leverage. Initially that meant about "2x," or $1 million borrowed for every $1 million of capital. By late March the leverage was 5x or more.

Hwang also kept his banks in the dark by trading via swap agreements. In a typical swap, a bank gives its client exposure to an underlying asset, such as a stock. While the client gains—or loses—from any changes in price, the bank shows up in filings as the registered holder of the shares.

That's how Hwang was able to amass huge positions so quietly. And because lenders had details only of their own dealings with him, they, too, couldn't know he was piling on leverage in the same stocks via swaps with other banks. ViacomCBS Inc. is one example. By late March, Archegos had exposure to tens of millions of shares of the media conglomerate through Morgan Stanley, Goldman Sachs Group Inc., Credit Suisse, and Wells Fargo & Co. The largest holder of record, indexing giant Vanguard Group Inc., had 59 million shares.

There's no evidence Archegos did anything improper. The atmosphere maintained in its offices was notably sober. One former employee says there was no cursing tolerated, a policy borrowed from Robertson's Tiger that stands in stark contrast to the profanity common on most trading floors. The same source also recalls Hwang toting a backpack like a college student and praising Uniqlo, the fast-fashion brand, because it's cheap and comfortable—a utilitarian ideal.

The clash of humility and audacity played out on the 38th floor of 888 Seventh Ave., high above Central Park. On one side was Grace & Mercy, on the other Archegos. People familiar with Hwang's investments the first few years he ran Archegos say they included Amazon; Expedia Group, the travel-booking engine; and LinkedIn, the job-search site Microsoft would acquire in 2016. A winning wager on Netflix Inc. netted Archegos close to $1 billion, one former colleague estimates. Hwang appeared to be channeling the same thesis Wood was applying at ARK and which millions of retail investors were beginning to embrace: technological disruption.

He was on a hot streak. By 2017, Archegos had about $4 billion in capital, according to a former banker who helped oversee its account at his firm. Hwang was sharing few financial details with his lenders, but no one raised any red flags. His leverage at the time was about the same as a typical hedge fund running a similar strategy, or two to two-and-a-half times, this person says.

One problem with stockpicking at Hwang's scale is hedging. Many sophisticated stockpickers try to reduce their risk by balancing long positions with shorts on similar names. That way they'll make up some losses with profits if the market tanks.

In principle, shorting is simple: You borrow shares and sell them, making money if the stock declines. In practice, it's often hard to find enough shares or borrow them cheaply. Another way to hedge is what's known as a portfolio short, a broad bet against the stock market, often made through an options or futures contract on the S&P 500. It's relatively easy to execute, but the hedge doesn't work if the market doesn't drop. The ex-banker says he recalls Archegos having a portfolio short.

At some point in the past few years, Hwang's investments shifted from mainly tech companies to a more eclectic mix. Media conglomerates ViacomCBS and Discovery Inc. became huge holdings. So did at least four Chinese stocks: GSX Techedu, Baidu, Iqiyi, and Vipshop.

Although it's impossible to know exactly when Archegos did those swap trades, there are clues in the regulatory filings by his banks. Starting in the second quarter of 2020, all Hwang's banks became big holders of stocks he bet on. Morgan Stanley went from 5.22 million shares of Vipshop Holdings Ltd. as of June 30, to 44.6 million by Dec. 31.

Leverage was playing a growing role, and Hwang was looking for more. Credit Suisse and Morgan Stanley had been doing business with Archegos for years, unperturbed by Hwang's brush with regulators. Goldman, however, had blacklisted him. Compliance officials who frowned on his checkered past blocked repeated efforts internally to open an account for Archegos, according to people with direct knowledge of the matter.

At the close of every trading day, Archegos would settle its swap accounts. If the total value of all positions in the account rose, the bank in question would pay Archegos cash. If the value fell, Archegos would have to put up more collateral or, in industry parlance, post margin.

The fourth quarter of 2020 was a fruitful one for Hwang. While the S&P 500 rose almost 12%, seven of the 10 stocks Archegos was known to hold gained more than 30%, with Baidu, Vipshop, and Farfetch jumping at least 70%.

All that activity made Archegos one of Wall Street's most coveted clients. People familiar with the situation say it was paying prime brokers tens of millions of dollars a year in fees, possibly more than $100 million in total. As his swap accounts churned out cash, Hwang kept accumulating extra capital to invest—and to lever up. Goldman finally relented and signed on Archegos as a client in late 2020. Weeks later it all would end in a flash.

The first in a cascade of events during the week of March 22 came shortly after the 4 p.m. close of trading that Monday in New York. ViacomCBS, struggling to keep up with Apple TV, Disney+, Home Box Office, and Netflix, announced a $3 billion sale of stock and convertible debt. The company's shares, propelled by Hwang's buying, had tripled in four months. Raising money to invest in streaming made sense. Or so it seemed in the ViacomCBS C-suite.

Instead, the stock tanked 9% on Tuesday and 23% on Wednesday. Hwang's bets suddenly went haywire, jeopardizing his swap agreements. A few bankers pleaded with him to sell shares; he would take losses and survive, they reasoned, avoiding a default. Hwang refused, according to people with knowledge of those discussions, the long-ago lesson from Robertson evidently forgotten.

That Thursday his prime brokers held a series of emergency meetings. Hwang, say people with swaps experience, likely had borrowed roughly $85 million for every $20 million, investing $100 and setting aside $5 to post margin as needed. But the massive portfolio had cratered so quickly that its losses blew through that small buffer as well as his capital.

The dilemma for Hwang's lenders was obvious. If the stocks in his swap accounts rebounded, everyone would be fine. But if even one bank flinched and started selling, they'd all be exposed to plummeting prices. Credit Suisse wanted to wait.

Late that afternoon, without a word to its fellow lenders, Morgan Stanley made a preemptive move. The firm quietly unloaded $5 billion of its Archegos holdings at a discount, mainly to a group of hedge funds. On Friday morning, well before the 9:30 a.m. New York open, Goldman started liquidating $6.6 billion in blocks of Baidu, Tencent Music Entertainment Group, and Vipshop. It soon followed with $3.9 billion of ViacomCBS, Discovery, Farfetch, Iqiyi, and GSX Techedu.

When the smoke finally cleared, Goldman, Deutsche Bank AG, Morgan Stanley, and Wells Fargo had escaped the Archegos fire sale unscathed. There's no question they moved faster to sell. It's also possible they had extended less leverage or demanded more margin. As of now, Credit Suisse and Nomura appear to have sustained the greatest damage. Mitsubishi UFJ Financial Group Inc., another prime broker, has disclosed $300 million in likely losses.

It's all eerily reminiscent of the subprime-mortgage crisis 14 years ago. Then, as now, the trouble was a series of increasingly irresponsible loans. As long as housing prices kept rising, lenders ignored the growing risks. Only when homeowners stopped paying did reality bite: The banks all had financed so much borrowing that the fallout couldn't be contained.

"While people will be talking about how this guy had one of the biggest losses of wealth ever, he will not be defined by that," says Doug Birdsall, who attended services at Redeemer Presbyterian Church with Hwang and whose nonprofit benefited from his philanthropy. "People will remember the kind of life that he lived, the character that he showed, the courage, humility and continued generosity." 

The best thing anyone can say about the Archegos collapse is that it didn't spark a market meltdown. The worst thing is that it was an entirely preventable disaster made possible by Hwang's lenders. Had they limited his leverage or insisted on more visibility into the business he did across Wall Street, Archegos would have been playing with fire instead of dynamite. It might not have defaulted. Regulators are to blame, too. As Congress was told at hearings following the GameStop Corp. debacle in January, there's not enough transparency in the stock market. European rules require the party bearing the economic risk of an investment to disclose its interest. In the US, whales such as Hwang can stay invisible.