The hedge fund that disappeared overnight

In March 2021, Wall Street was blindsided by the implosion of Archegos Capital, a little-known family office that wiped out $36 billion in market value overnight and left global banks scrambling to contain the damage.

At the center of it all was Bill Hwang, a former hedge fund star turned high-stakes investor, whose aggressive bets and secretive trading strategies ultimately triggered one of the biggest financial collapses in recent history.

This week, we break down how Hwang built a billion-dollar hedge fund, the risky trades that led to Archegos’s downfall, and the legal fallout that followed:

• 💼 From trader to hedge fund manager

• 📊 The risky trading strategy

• 📉 Archegos collapse and legal fallout

— Investor Briefcase Team

Bill Hwang was a rising star in finance before his downfall. Born in South Korea, he moved to the United States for his education, earning an economics degree from UCLA and an MBA from Carnegie Mellon University. He started his career as a stock salesman at Hyundai Securities, followed by a stint in the now defunct Peregrine Securities, where he specialized in Asian markets. It was there that he caught the attention of one of his clients named Julian Robertson.

Robertson was a hedge fund manager who founded Tiger Management in 1980, which became one of the most prominent hedge funds of its time, managing over $22 billion at its peak. Seeing potential in Hwang’s deep knowledge of Asian markets and aggressive yet calculated approach to investing, Robertson brought him on as an analyst at Tiger Management.

Bill Hwang joined Tiger Management in the mid-1990s and quickly became one of the funds top-performing traders. When Tiger Management wound down operations in 2000, Robertson began seeding a select group of his most promising protégés, known as the “Tiger Cubs,” with capital to launch their own firms.

Hwang was among them and in 2001, Robertson backed him with $25 million to start Tiger Asia Management, a hedge fund focused on Asian markets. With Robertson’s support and a reputation for aggressive stock picking, Hwang quickly turned Tiger Asia into a major player. The fund grew to over $5 billion at its peak and delivered an annualized return of 16%, according to Bloomberg.

Unlike traditional hedge funds, which often diversify across sectors and regions, Hwang took a high-conviction, concentrated approach, focusing heavily on Asian markets. His biggest successes included early bets on Chinese internet stocks, particularly Tencent, which multiplied in value.

But Hwang’s high-risk, high-reward approach would soon lead him into trouble.

In 2009, Tiger Asia Management was accused of insider trading involving private placements of Chinese bank stocks. The Hong Kong Securities and Futures Commission alleged that Hwang’s firm had received confidential information from investment banks about upcoming share placements by Bank of China and China Construction Bank. Knowing these stocks were likely to drop after the announcements, Hwang short-sold them before the news became public.

By 2012, the SEC also charged Tiger Asia with insider trading, leading to millions in fines and a four-year trading ban in Hong Kong. Investor confidence collapsed, forcing Hwang to shut down Tiger Asia in 2013. He rebranded it as Archegos Capital, a family office that let him trade his personal wealth without the oversight that came with managing outside money. With far less capital at his disposal, Hwang turned to leverage to amplify his bets.

Archegos Capital’s strategy revolved around creating a highly concentrated portfolio of technology and media stocks, using extreme leverage to amplify gains. Instead of directly owning shares, he used total return swaps.

A total return swap essentially allows one party to gain the benefits of owning an asset without actually owning it, which allowed Hwang to keep regulators and the public in the dark. Hwang, through his good track record, managed to get Wall Street giants to support Archegos such as Nomura, Credit Suisse, Goldman Sachs, and Morgan Stanley. They also saw their relationship with Archegos as a great way to expand their prime brokerage clientele. 

It was reported that Archegos was getting between 8 to 20 times leverage on its stock positions and utilized approximately $160 billion in leverage to control a portfolio worth around $100 billion. But there was an issue, which was only revealed later as Hwang’s top five stocks made up 80% of his portfolio and 360% of his net exposure, meaning any sharp downturn would trigger catastrophic losses.

Hwang’s top holdings included ViacomCBS and Discovery, companies he believed in due to their growth potential, price momentum, and strong market positions. As long as stock prices kept climbing, the strategy worked. But the illusion of success in a rising market masked the immense risks.

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The seemingly unstoppable rise of Archegos Capital collapsed in March 2021. ViacomCBS had announced a $3 billion share offering but raised only $2.65 billion. At the same time, its stock price plummeted from $100 to $66. The sharp drop in a core holding, combined with Archegos’ extreme leverage, triggered massive margin calls that the firm could not meet. The fallout rippled across Wall Street, forcing banks to scramble in order to try and avoid the billions in losses from the capital they had allowed Bill to leverage in his trades.

As the banks demanded repayment, Archegos’ highly concentrated positions were forced to liquidate, triggering billions in losses across Wall Street. Credit Suisse took a $5.5 billion loss and was forced to shut down its prime brokerage unit. Nomura lost nearly $3 billion, and other institutions, including Morgan Stanley and Goldman Sachs, faced significant exposure.

As a result, Hwang lost $20 billion in just two days, one of the fastest personal wealth collapses in history.

In April 2022, Hwang was arrested and charged with fraud, market manipulation, and racketeering. Prosecutors alleged that he engaged in a fraudulent scheme to artificially inflate stock prices, misleading banks into extending billions in credit.

His trial is set for February 2024, and if convicted on all counts, he could face up to 80 years in prison. For now, Hwang remains free on bail, awaiting his fate. Once regarded as an investing visionary, he is now a reminder of how unchecked risk, blind conviction, and excessive leverage can lead to billion dollar losses.

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Other Notable Failed Hedge Fund Managers

> LTCM Founders (John Meriwether, Myron Scholes, Robert Merton): Long-Term Capital Management (LTCM) was a hedge fund that collapsed in 1998 after relying heavily on leverage and complex mathematical models. The fund’s failure led to a near-systemic crisis, requiring a Federal Reserve-coordinated bailout.

> Bernard Madoff: Operator of the largest Ponzi scheme in history, Madoff ran an investment firm disguised as a hedge fund, defrauding clients of an estimated $65 billion. His fraudulent scheme unraveled in 2008, leading to his arrest and life imprisonment.

> Eddie Lampert: Once hailed as a financial genius, Lampert’s hedge fund ESL Investments struggled after he took over Sears and Kmart. His strategy of aggressive cost-cutting and financial engineering failed, leading to the bankruptcy of Sears in 2018.

> Victor Niederhoffer: A quantitative trader and former partner of George Soros, Niederhoffer saw his hedge fund collapse in 1997 due to highly leveraged bets on the market. He later faced another fund failure in 2007 during the financial turmoil.

Each week we profile the most notorious investment stories.

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