Archegos: Snowflake That Triggers the Avalanche?

by James Rickards
Daily Reckoning

Archegos was not a household name until about two weeks ago when it made headlines all over the world.

Archegos Capital Management is a family office controlled by Bill Hwang, a former hedge fund trader. Family offices can be conservative in their investment approach, but they can also be as highly leveraged and as risky as any hedge fund, or even more so. It’s up to the person managing the family office.

In Hwang’s case, the money was mostly his own, so he ran his family office the way he used to run his hedge fund – with high leverage and almost no transparency. Hwang made huge bets in stocks, often buying as much as 10% of a company.

He avoided legal reporting requirements on positions of 5% or more because they were mostly held through complicated financial instruments called derivatives. Instead of actually owning the stock (which would require reporting), he bought equity swaps from big banks.

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