Chinese tech firms hammered by the Archegos blow-up announce share buybacks

Bill Hwang
  • Three Chinese tech firms will buyback $1.55 billion in shares after their stocks fell due to the Archegos’ blow-up.
  • Hedge fund Archegos Capital Management was forced to liquidate its positions due to margin calls from banks.
  • Vipshop, Tencent Music, and GSX Techedu all announced share buybacks in the past week.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

The Chinese tech firms Vipshop, Tencent Music Entertainment, and GSX Techedu all announced share buybacks after getting hammered by the hedge fund Archegos’ blow-up at the end of last week.

Tencent Music Entertainment’s board approved a $1 billion buyback program of its class A shares over the next 12 months on Sunday.

Vipshop followed suit this week authorizing a $500 million share buyback program over the next 24 months on Tuesday. Both companies plan on using their existing cash balances for the repurchases.

Larry Xiangdong Chen, the founder, chairman and CEO of GSX Techedu, said he would use personal funds to buy back $50 million worth of his education technology company over the next 12 months in a Tuesday press release as well.

The three Chinese firms were hurt by the forced liquidation of Archegos’ Capital Management, a hedge fund that failed to meet margin calls from big banks including Goldman Sachs, Morgan Stanley, Credit Suisse, Nomura, UBS, and Deutsche Bank.

Archegos’ had placed leveraged bets on the Chinese tech firms, among others. When it was forced to rapidly liquidate its positions to pay back banks, shares of its holdings plummeted.

In the past week alone, as of Monday’s closing price, Vipshop fell over 37% while Tencent Music Entertainment and GSX Techedu fell 36% and 56%, respectively.

The Archegos blow-up didn’t just hurt the hedge fund’s holdings either. Banks like Credit Suisse and Nomura have said they are facing significant losses stemming from the event.

Archegos’ was run by Bill Hwang, a former protégé of the hedge-fund titan Julian Robertson, who founded Tiger Capital Management.

Hwang used “total return swaps” to borrow huge sums from banks in relative anonymity without having to put down as much collateral. “Total return swaps” allow users to take on the profits and losses of a portfolio in exchange for a fee.

The tactic has been widely criticized by economists and investors including Warren Buffett. The “oracle of Omaha” said in a 2002 letter to investors that these types of “derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.”

Read the original article on Business Insider

The man at the heart of the Archegos fiasco is a ‘Tiger cub’ and devout Christian who pleaded guilty to insider trading. Meet Bill Hwang.

Bill Hwang
Archegos co-CEO Bill Hwang.

  • Bill Hwang’s Archegos fund was reportedly hit by margin calls, sparking a brutal sell-off.
  • The “Tiger cub” is deeply religious and believes he’s doing God’s work by investing.
  • Hwang previously pleaded guilty to insider trading and was slapped with a trading ban.
  • See more stories on Insider’s business page.

Bill Hwang is the talk of the financial world after several Wall Street banks reportedly slapped his family office with margin calls last week, declared him in default when he didn’t pay up, and executed a $20 billion fire sale of his positions that hammered stocks including ViacomCBS and Discovery.

The deeply religious founder and co-CEO of Archegos Capital Management has run into trouble before. He pleaded guilty to insider trading in 2012, forked over $60 million to settle related charges, and closed down his fund. He was also banned from trading securities in Hong Kong for four years in 2014.

Here’s a quick look at Hwang’s life so far.

A religious upbringing

Hwang was born in the mid-1960s and raised as a devout Christian. His father was a church pastor and his mother served as a missionary in Mexico, he said in a 2018 interview promoting communal bible readings.

The fund manager smiles a lot, cracks jokes, and comes across as humble in the interview. He doesn’t take himself too seriously, but clearly feels a burning desire to spread the gospel.

Faith has guided Hwang’s entire career. He sees investing as his calling, and believes God “loves” when he backs companies that contribute to humanity’s progress. “It’s not all about money,” he said in another 2018 interview.

Hwang gave the example of one of his larger investments, Linkedin. He suggested that God loves the social-media group’s goal of helping people to find jobs and realize their potential.

“I’m like a little child looking for what can I do today, where can I invest, to please our God,” he said. Inspired by Jesus Christ tirelessly working for his father, Hwang added, “I’m not going to retire until he pulls me back.”

Hwang is involved in several Christian organizations. He’s the cofounder of the Grace and Mercy Foundation, a contributor to Focus on the Family, and a trustee of the Fuller Theology Seminar, the three groups’ websites show.

Becoming a tiger cub

Hwang holds an economics degree from UCLA and a MBA from Carnegie Mellon, an online biography shows. He worked as a stock salesperson at Peregrine Securities and Hyundia Securities early in his career, until he caught the eye of one of his clients, Julian Robertson. He soon went to work under the veteran investor at his storied hedge fund, Tiger Management, and became one of his protégés.

Robertson closed his fund in 2000, but handed Hwang about $25 million to launch his own fund, Tiger Asia Management. One of several “Tiger cubs,” Hwang grew his firm’s assets to over $5 billion at its peak, The Wall Street Journal says, and delivered an annualized return of 16%, according to Bloomberg.

However, Hwang shuttered the fund in 2012 after pleading guilty to insider trading in federal court that year. He paid a total of $60 million to settle civil and criminal charges of manipulating Chinese stocks, and his fund forfeited about $16 million in related profits.

Going private

Hwang converted Tiger Asia into a family office, Archegos, in 2013. The switch meant he no longer managed any outside money, slashing the regulatory disclosures required of him.

Archegos roped in several major banks to place leveraged bets on multiple stocks. However, the markets turned against the fund last week, prompting brokers to issue “margin calls” or demand more money as collateral. When Hwang failed to comply, the banks liquidated over $20 billion worth of his positions to recover their money, sparking a brutal sell-off across a dozen stocks.

The full scale of the fallout from Archegos blowing up won’t be known for a while. Yet it’s safe to say that Hwang is at the center of another fiasco that he would have preferred to avoid.

Read the original article on Business Insider