Thread by @LongShortTrader

The archegos coverage is improving but there’s a key question that remains unanswered:

How/why/when did a guy whose portfolio was concentrated FAANG for many years (and before FAANG was an acronym) - my guess is 2012-2019 -

pivot into levered long highly shorted stocks?

We did diligence on Archegos 6 years ago - which is why I find most of the archegos coverage/comments laughable. None of you ever talked about them until last Friday. Armchair “experts” (meaning, quacks) all over.

Do the math- if their starting AUM was few hundred million $s and was concentrated FAANG - and had insanely long holding periods, maybe in some cases doubling down or averaging up - you then get to your few billion.

And that’s where my questions begin.

Before I started short selling 10 years ago, I was a consultant paid to study hedge fund blowups. It’s an area of focus + interest for me ever since. Nearly all your fav armchair experts (since last Friday) on Archegos are talking out of their rearends.

So from several billion - which could’ve easily been achieved with little to no leverage (modest If not maybe even conservative gross exposure) - how, why, and when exactly do you pivot to far higher gross exposure ? Maybe 2020 when things were crashing? That’s one question.

Here’s another question - if you did start utilising leverage In a big way in 2020 on the long side - you probably ran into a problem all L/S funds face when you get big: how do you hedge? How does a single stock short seller scale , in other words ? It’s hard.

Here’s my educated guess on hedging since 2020: they got too large on leverage, but it was working, and liked every single position.

So instead of attempting to hedge as he did traditionally - he resorted to index/futures shorts as hedges ...

Setting up for basis risk.

Yes this leads me to my next question/observation : they were long time FAANG holders - and seem to have pivoted away from that starting in 2020 and definitely q1 this year. Whereas us index shorts worked as hedge against FAANG, against viac/China tech ?

https://twitter.com/doubled0101/status/1377813999346147329

“Why didn’t archegos call it quits at $10 billion AUM” - I think that’s the wrong question, because that 10 # didn’t last long (3 months max?).

The right question: what was going through the mind at 2-5 billion? at those levels, you would’ve had more like 1-2 years to ponder.

At 2-5 billion, most L/S funds have an incredibly hard time hedging longs with a bona fide portfolio of single stock shorts, especially of the fraud/fad/failure kind. It’s very difficult, and most from this level start becoming closet long onlys. At 10 billion, haha.

Some position/allocation specific questions: when/why exactly did Archegos start owning and building positions in $DISC / $VIAC , companies at a different part of the quality spectrum from the FAANGS (where Hwang compounded his wealth over many years)? Was this a bet on rotation?

when/why exactly did Archegos start owning and building positions in the China tech names? Was this also a bet on a multi year rotation, away from us tech, toward China tech?

The BIDU position would validate the above thinking, and also suggest a belief in multiples reversion.

Some people talk about Archegos as if $GSX was its only position. That’s clearly false, but when/why exactly did Archegos start owning it? How large of a position was it ? It’s more of a battleground stock than most fintwit think, but it’s no Amzn (where Bill made a lot of $ LT)

I’ve seen this movie before many times - when a fund blows up, nearly everyone assumes the worst of the blown up fund. The fund lost $, therefore all their decisions must have been stupid. They lost $ therefore they must’ve been doing something unethical/illegal. Not so simple:

Take jon corzine / mf global (incidentally, another New Jersey resident like bill Hwang): let’s assume he committed crimes, got away with it. And also got too big. Well well, the actual underlying call - long European sovereign bonds - turned out to be correct! He was the bottom.

Thus if I were to follow the corzine / mf global analogue- neither being dismissive of possible wrongdoing/stupidity - archegos may have been shifting its portfolio away from FAANG, into relatively out of favour areas, anticipating a LT rotation. But with leverage, concentration.

https://twitter.com/anthpb/status/1376386520005890053

Finally, on Bill Hwang’s non profits/ charity work: as I said earlier, we started our diligence 6 years ago... when some recent armchair experts (as of last Friday) were still wearing diapers. my thoughts: I would be surprised if Bill himself committed wrongdoing on this front.

I have observed fraudsters who weaponise their charity/religious/non profit work as a shield against scrutiny. But I heard about Hwang’s giving even years before we started doing diligence 6 years ago. He didn’t wear it on his sleeve, and in fact kept low key profile.

Some have accused him of wearing his Christian faith on his sleeve... but I’ve only seen people cite videos or his words directed AT CHRISTIAN AUDIENCES as the basis of their accusations, and that’s unfair. None of you talked about him or knew anything about him til last Friday.

The fact is that all of bill hwang/Archegos affairs will be scrutinised, and we will all learn more over time. I personally think there’s higher ROI in focusing on the fund’s activities, especially in the last 2 years.

Also, IMO JR will be right, over time.