Archegos Capital’s Asia Connection & Potential Impact on SFOs

Early this week, a lesser known Company, Archegos Capital (setup as “Single Family Office” or SFO) was forced to liquidate its $30B position by Goldman Sachs , Morgan Stanley and Deutsche Bank to meet the margin call. Credit Suisse and Nomura were its other creditors , who were caught completely off-guard (both together may take a hit of $6B in Q1 this year due to this incident).     

How was it operating

Archegos Capital has had a strong link with Asia. Bill Hwang established Tiger Asia Management in 2001. It was established following his time as a “tiger cub” – a term to describe the hedge funds with roots that trace back to renowned hedge fund manager Julian Robertson and its 42-year old Tiger Management. 

Tiger Asia grew to be a multi-billion-dollar hedge fund and one of the largest investors in Asian financial markets but in 2012, the Securities and Exchange Commission charged Hwang and Tiger Asia with insider trading and manipulation of Chinese stocks. Hwang pleaded guilty, agreed to criminal and civil settlements of over $60 million and later closed the fund.

In 2013, Hwang circumvented the SEC regulations and converted its hedge fund firm into a family office – Archegos Capital Management – which has now grown to become larger than even many well-known hedge funds.

So, it quite important to understand single family office entity.

Single Family Office (SFO) Entity

Unlike hedge funds or private equity funds, family offices can escape the state and federal securities regulations by taking advantage of a statutory exemptions. These exemptions help such entity from going through onerous reporting and due diligence burdens. They also allow family offices to keep its privacy and a significant level of control over their investments. SFO offers a holistic solution for managing the finances of UHNWI’s family.

North America has largest number of single-family office entities. In the last two years, assets under the management (AUM) of family offices has risen 38% to $5.9 trillion globally. A large, and growing, portion of these assets are private.

There are almost 200 Single Family Offices (SFOs) in Singapore and this number has been growing during the recent years. Each of such SFO manages an AUM of at least $100m. Total AUM of SFOs in Singapore could be close to $20B.

MAS does not have hard data on the scale of SFOs’ operations because these family offices are not registered with or licensed by the MAS, as SFOs do not manage third-party monies. Such family offices contribute to local economy of Singapore when they engage external finance, tax and legal professionals for advice on wealth planning and operational matters.

Typical Portfolio of SFOs

Likely Impact on SFOs

It appears that SFOs entity may have to bear the brunt of Archegos Capital fiasco. SEC may consider to tighten the noose of such business entities. Other regions may have to fall in line.

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Published by Amit

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