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Why family offices should tap Bill Hwang’s trading skills

Despite the collapse of Bill Hwang’s Archegos Capital family office, his peers may yet tap into his trading skill, says Angelo Robles, founder of the Family Office Association.

Robles stressed that family offices would want to be sure Hwang is innocent of wrongdoing. Despite a succession of lurid press articles, however, there is no evidence he is guilty of any wrongdoing. 

I’m not saying he’s a great guy. I’m not saying he hasn’t made mistakes. But when he converted to a legitimate family office, this was his money

If, or when, the dust settles, Robles believes family offices could be willing investment vehicles worth, say, $200 million with Hwang, with returns split 50/50 for three to five years.

In conversation with Thomas Handler, partner of legal firm Handler Thayer, Robles says: “This guy came from nothing. He worked in the hedge fund industry to make $200 million from nothing, to become a member of the top 1%. 

“I’m not saying he’s a great guy. I’m not saying he hasn’t made mistakes. But when he converted to a legitimate family office, this was his money. He has a separate legal entity. He owns massive accounts of philanthropic initiatives, some argue worth $500 million. 

“He has tremendous leverage and guts of steel. I have heard it said that his family office rose to $30 billion in seven or eight years, which would mean a return of 150 times on his initial $200 million. To get that kind of return from a small number of concentrated positions is incredible. 

“His level of risk management – that was horrible. And that’s going to be a big issue. But the banks knew about this. He’s one of the greatest investment traders we have ever seen.”

Along the way, Hwang moved in silence by trading swaps rather than physical securities, facilitated by his banks. It remains to be seen whether Hwang offered personal guarantees.

Things went wrong on 26 March when Hwang’s massively leveraged long positions in stocks like ViacomCBS that were hit by following a sharp run-up.  Archegos was forced into margin calls which destabilised his entire portfolio of swaps.

Son of a Korean parson, Hwang is said to live a modest lifestyle devoted to his trading and charity.  He once said of his Christian faith: “I am not afraid of death, or money.”

In handling his leveraged portfolio Hwang had total faith in his own research and judgement. In this, he took after his former employer Julian Robertson, the hedge fund pioneer, who invested in his Tiger Asia hedge fund at inception in 2001. 

Hwang converted Tiger Asia into a family office in 2012, after generating 15.8% a year, according to Institutional Investor, following an early annualised run of 40%. The credit crisis was a difficult period. Unlike many hedge funds, he survived it, although he settled a case relating to insider trading at his Tiger Asia without admitting fault.

Handler reserves judgement on Hwang, his swaps and the banks. But he said Hwang had been prematurely vilified in the media because it is now a sport to criticise affluence and achievement: “The only reason you get billionaires is because people took incredible risks and worked very hard.”

Robles says the generations who work to preserve their assets at family offices are building on the back of risk-taking wealth creators, who understand the rare talents of people like Bill Hwang. Without wealth creators like him, they struggle to service the sharply rising costs of managing football clubs, or fancy houses.

He notes that many of the hedge fund managers who turned their businesses into family offices started to perform far better, most years, when their decisions weren’t second-guessed by risk-averse institutional clients. 

Handler said the Hwang affair has led to fears that family offices would become increasingly regulated. He said this would be misguided but added the use of swaps in off-balance sheet transactions could be better regulated.  

 

 

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