Leverage: Fantastic on the Way Up, Hideous on the Way Down
Bill Hwang, convicted inside trader, founded Archegos as a “family office.” Kirshner explains this legal nicety “functions like a hedge fund but manages the assets of just one or a few wealthy families. In theory, a family office gives a problem trader less opportunity to harm others, because they are not playing with outsiders’ money.”
Hwang’s new firm approached big banks including Goldman Sachs, Morgan Stanley, Japan’s Nomura and Switzerland’s Credit Suisse. These firms extended leverage, or margin loans, to Archegos, which invested heavily on swap trades: