Archegos Meltdown Is Another Groundhog Day on Wall Street
Once again, greed and a ravenous appetite for debt are at the root of a hedge fund’s distress.
This seems oddly familiar.
Photographer: Ron Antonelli/Bloomberg
Everything old is new again on Wall Street — including a volcanic market crack-up involving a heavily indebted, high-flying hedge fund that’s able to operate with enough anonymity and impunity that nobody seems to be aware of how bad it might get until the eruption occurs.
Today it’s Archegos Capital, a hedge fund that Bill Hwang ran out of his family office, which was forced to liquidate more than $20 billion worth of stocks on Friday because it had essentially gorged on more debt than it could handle. When markets moved against his bets on a cluster of Chinese equities and shares in at least two U.S. companies, ViacomCBS Inc. and Discovery Inc., the bottom fell out.
In 1998, it was Long-Term Capital Management, a hedge fund run by John Meriwether and a band of former Salomon Brothers bond traders, which was forced to liquidate — after receiving a cash infusion of $3.6 billion in a rescue orchestrated by federal regulators — because it had essentially gorged on more debt than it could handle. When Russia defaulted on its sovereign debt and markets moved against LTCM’s bets on interest rate spreads, the bottom fell out.
A lack of transparency, and lots of unknowns about what’s lurking in the shadows, is a familiar co-conspirator in headline-grabbing Wall Street meltdowns. Thus it was in 1998 and thus it is today.
More on the Meltdown at Archegos:
Brian Chappatta: Goldman Sachs and a Blind Spot for Fed