Archegos Capital Fallout – Explained

What’s up, everyone? Today, I want to explain what the Archegos Capital Fallout was and why it’s applicable to you!

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This is a story of how one family office brought many firms to their knees while sustaining billions of dollars of losses themselves.

They call it a hedge fund, but Archegos was basically just a family office ran by Bill Hwang.

Before we get farther in, let’s define a prime broker.

Prime Broker

In a family office or a fund, you generally have the general partnership (GP) and the limited partnership (LP). The GP is run by the fund manager(s) and the LP is the pool of capital, or fund.

Usually, the fund manager hires a separate entity, a prime broker, to help facilitate trades and regulations. They add margins to whatever they do.

So, what happened?

Bill Huang’s family office fund took out a big position in Viacom, who ended up doing very well.

There was a lot that happened but suffice it to say that Archegos took out a lot of margin on this account.

But What’s Margin?

Let’s say you wanted to buy a $1M position, but only put down 20%. The margin would be $200K and the bank would lend you the rest and you’d get that position.

Seems great, but if the stock goes down, then your margin is the first to go!

If a stock drop happens like that, there are usually some margin calls made.

A margin call is when the prime broker requests money from the LP to cover their losses; and yes, they have the authority to do so.

This is bad for Archegos because they had 6 prime brokers!


So, Viacom tried to issue new stock with JP Morgan, and it failed.

This, along with some other factors, led Viacom’s stock to go way down.

Margin calls were made, and Bill didn’t have the money to pay out.

Goldman Sachs and Morgan Stanley had good risk management, so they didn’t take took much damage. However, the other 4 firms took some scary losses because they couldn’t get their money back from Archegos.

These firms allowed Bill Hwang and his family office way too much leverage, and he used that leverage to bet all that money on swaps.

He lost over $20 billion due to the crash of Viacom! Archegos went bankrupt and their prime brokers lost significant amounts of money as well.

Hopefully you understand the Archegos Capital fallout a little better now!


Bridger Pennington

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DISCLAIMER: This content is for educational and informational purposes only. It is not to be taken as tax, financial, or legal advice. You should always consult a legal professional before taking action. Furthermore, this is not a recommendation to buy or sell any security. The content is solely just the opinion of the authors.

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