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Hedge Clippings | Thursday, 01 April 2021
One would be excused for thinking that reports of hedge funds behaving badly is either a case of deja vu, or possibly even an April Fool's joke. Deja vu certainly, but a joke it certainly isn't. We're referring of course to Archegos Capital in the US, which is in the news for all the wrong reasons.
Archegos Capital's principal is none other than Bill Hwang, who last hit the headlines in 2012 while at hedge fund Tiger Asia when charged by the SEC for making US$17m in illegal insider trading profits, for which he was put on probation for a year, and he and Tiger agreed to pay the SEC US$44 million to settle the charges.
To be fair, US based Archegos Capital isn't a hedge fund, but a "Family Office", a technicality which allowed principal Bill Hwang to bypass US regulators' previous actions against him following his tenure and track record at Tiger Asia.
Hedge Funds are tightly regulated, while Family Offices are not. But one would have thought that his previous history would have - if not sent him to the slammer for a 2-5 year stretch - at least precluded him from working in the industry for a very long time, such as never again. Not a great record for the SEC, but they're not the only ones.
Goldman Sachs and others ceased doing business with Hwang for a while after the Tiger issue, but the lure of the significant fees available presumably overcame their reluctance, and they happily, it seems, resumed their relationship, but this time under the Archegos entity.
So much for increased compliance in investment banking! Japan's Mitsubishi UFJ Securities is expecting a loss of $300m "in relation to a US client" while Nomura and Credit Suisse are facing losses of as much as $2 billion and a "significant hit" to earnings respectively, without actually admitting Archegos was the client involved.
At AFM (and elsewhere) hedge clippings has always understood that while performance is important, it is also people and process - generally known as the "Three P's" - that govern due diligence decision making. We were obviously mistaken: Replace Performance with Profit, and provided that "P" is sufficiently large, to hell with the other two.
Hedge Clippings had a little rant a few weeks back about the process that allowed Mayfair 101 to fleece Australian (so called sophisticated) investors out of around $80 million, and the various ways of interpreting the difference between "investing" other people's money as if it was their own. In that case the investors might have been legally sophisticated in name only. Firms such as Goldman Sachs, Mitsubishi, Nomura and Credit Suisse have no such excuses.
Meanwhile, as a footnote, a spokesperson was reported to have said this is a "challenging time" for Archegos. That, we presume, was probably an understatement - or possibly the April Fool's joke.
And on that note, here's wishing all our readers a safe and happy Easter long week-end.
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