Archegos and Hidden Swap Leverage

Archegos Capital Management was Bill Hwang's family office — not a hedge fund raising money from outside investors, and therefore not subject to the disclosure rules that apply to funds managing other people's money. By March 2021, Archegos had built stock positions worth over $100 billion, concentrated in a handful of names like ViacomCBS and Discovery, using leverage of roughly 5 to 8 times its actual capital. No single regulator or bank saw the full picture, because Archegos didn't own the stock directly at all.

How the swaps hid the exposure

Instead of buying shares itself, Archegos entered total return swaps with half a dozen banks — Credit Suisse, Nomura, Morgan Stanley, Goldman Sachs and others. In a total return swap, the bank buys and holds the actual shares, and simply pays Archegos the economic gain or loss on those shares in exchange for a fee, without Archegos ever appearing on the company's public shareholder register. Each bank could see the size of the position it was carrying for Archegos, but had no visibility into how much exposure the other banks were separately running with the same client against the same handful of stocks — so what looked like a manageable client position to each bank individually was, in aggregate across all banks, an enormous, dangerously concentrated bet.

The unwind

When ViacomCBS announced a stock sale in late March 2021 and its share price dropped sharply, Archegos couldn't meet the resulting margin calls. Banks began racing each other to sell the underlying shares their swaps were referencing, and because the position was so large relative to normal trading volume in those stocks, each bank's own selling pushed the price down further and worsened the very margin call it was trying to escape. Some banks (Morgan Stanley, Goldman Sachs) sold quickly and largely avoided losses; Credit Suisse moved slowly and lost about $5.5 billion, a blow that weakened the bank in the run-up to its eventual 2023 collapse (see The Credit Suisse AT1 Writedown).