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Matt Levine

What Was Bill Hwang Thinking?

Archegos’s stocks went up and then they went down.

Here is a simplified version of the Archegos story. Archegos Capital Management was a family office run by Bill Hwang, a former Tiger Cub hedge fund manager, that invested his personal fortune. Starting in about 2020, Archegos’s investment strategy consisted of buying a whole ton of shares of like 10 stocks, using mostly money borrowed from about a dozen banks. (Technically it did this buying using total return swaps rather than actually buying the stocks on margin, but that is a minor point.)

As Archegos kept buying more of these stocks, they went up, because generally if you buy a lot of a stock the price will go up. As the prices went up, Archegos had mark-to-market profits: The shares it bought earlier at lower prices were worth more, so it had made money. Archegos used these profits, leveraged with more money borrowed from its banks, to buy more of its favorite stocks. This made the prices go up more, which created more profits, which gave it more money to buy more stocks, etc., in what I guess you could call a virtuous cycle.