This well-written paragraph, from @RobinWigg article in the @FT on " #Archegos poses hard questions for #WallStreet", captures well the fallacy of composition issue that I've seen play out repeatedly in finance, and that risks fueling disorderly de-leveraging and distressed sales pic.twitter.com/EIaX8JzBnc— Mohamed A. El-Erian (@elerianm) March 29, 2021
"Concerns about his reputation and history were offset by a sense of the huge opportunities from dealing with him, according to two of Archegos’s prime brokers. He is known as an “aggressive, moneymaking genius”, according to one analyst note.https://t.co/xrBRYzNXA7— JC Oviedo (@JCOviedo6) March 29, 2021
This is way out of my field, but you'd think that in a time of SPACs, billion dollar unicorns that lose money on every transaction but hope to make it up in volume, meme stocks, insane volatility, investor cults of personality and P/Es over a thousand, putting aside concerns might be a bad idea.
Bill Hwang, a former hedge fund manager who’d pleaded guilty to insider trading, was deemed such a risk by Goldman Sachs Group Inc. that as recently as late 2018 the firm refused to do business with him.
Those misgivings didn’t last.
Wall Street’s premier investment bank, lured by the tens of millions of dollars a year in commissions that a whale like Hwang paid to rival dealers, removed his name from its blacklist and allowed him to become a major client. Just as Morgan Stanley, Credit Suisse Group AG and others did, Goldman fueled a pipeline of billions of dollars in credit for Hwang to make highly leveraged bets on stocks such as Chinese tech giant Baidu Inc. and media conglomerate ViacomCBS Inc.
Now Hwang is at the center of one of the greatest margin calls of all time, his giant portfolio in a messy and painful liquidation, and Goldman’s reversal has thrust it right into the mayhem.