Bill Hwang’s family office, Archegos Capital Management, failed in spectacular fashion in March as investments in complex derivative products — specifically, total return swaps on individual stocks — rapidly accumulated losses too large for the firm to cover. As a result of Archegos’s default on these positions, large investment banks that were counterparties to the trades were left holding the bag. Some banks suffered large losses as they unwound those positions.
Many policy makers and commentators have used the Archegos event to fault current systemic-risk safeguards and call for increased scrutiny for, or even direct regulation of, family offices. Yet the systemic impact on the financial system of the Archegos-fueled losses was zero. Indeed, even the most directly affected firms easily weathered the event. Morgan Stanley and Goldman Sachs Group Inc., for instance, still posted record quarterly earnings. Only Credit Suisse Group AG, which also suffered from the Greensill Capital implosion, was compelled to raise a small amount of equity, and it did so smoothly and quickly.