WHY ARCHEGOS’ FALL HAS SPOOKED INVESTORS

WHAT IS ARCHEGOS?

ARCHEGOS is a family office started by former hedge fund manager Bill Hwang. Such funds manage just one (very rich) family’s money.

WHAT IS A PRIME BROKER?

PRIME brokers are investment banks that offer services to investors, other banks or hedge funds.

They have branched out into complex instruments like contracts for difference (CFDs), which allow clients to bet on share price movements.

WHAT’S HAPPENED?

ARCHEGOS was taking big bets on Viacom stock, which it hoped would keep rising after an excellent year.

To do this Archegos took out CFDs, essentially placing bets without actually owning the shares.

But Viacom’s shares fell sharply last week. Archegos’ prime brokers, including Goldman Sachs, saw the family office was dangerously overleveraged and issued a margin call on Friday.

WHAT IS A MARGIN CALL?

MARGIN calls are when banks ask their clients to stump up more money to cover potential losses. They are conisdered so hairy a film called Margin Call, starring Kevin Spacey and Jeremy Irons, was made shortly after the financial crisis. Archegos was hit by a string of margin calls including from Goldman, Morgan Stanley, UBS, Credit Suisse and Nomura – but couldn’t pay.

THEN WHAT HAPPENED?

ARCHEGOS started to sell assets in order to raise money but it wasn’t enough. Its prime brokers were also dumping stocks exposed to Archegos – sending shares down even further.

There are deep fears that other family offices could have similar exposure to the global stock market and that the world could be on course for another financial crisis.

WHO IS BILL HWANG?

HWANG has had a chequered past and, as recently as 2018, Goldman Sachs had him on a blacklist. In 2012 he settled a case with the US regulator for insider trading.

He is a so-called Tiger Cub, having made his name working at Tiger Management, the hedge fund run by Julian Robertson. After a short stint running his own hedge fund, he decided to manage his own money.