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Trung Phan Profile picture
@TrungTPhan
Apr 4, 2021 • 23 tweets • 9 min read • Read on X
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1/ For the past decade, 57-year old investor Bill Hwang (through his fund Archegos Capital) quietly built one of America's largest fortunes.

In late March, Archegos imploded and Hwang personally lost $8 billion over a 10-day span.

**$8B in 10 days**

Here's the insane story🧵
2/ Hwang is a true immigrant success tale.

Born Sung Kook Hwang, he moved from S. Korea to America as a child.

Hwang grew up in a religious household (father=pastor, mother=missionary) and to very modest means.

He taught himself English working night shifts at McDonald's.
3/ Hwang studied at UCLA in the 80s and his first job after graduation was as an equity salesman at Hyundai Securities.

While there, he met (and impressed) investing legend Julian Robertson, who ran Tiger Management hedge fund.

Robertson hired Hwang and taught him the ropes.
4/ In 2001, Robertson staked Hwang with $1.2B to start Tiger Asia...an NY-based fund picking Asian stocks.

His investing style later came back to haunt him:

• owning only a handful of stocks
• targeting "heavily shorted" names
• using leverage to juice his returns
5/ For years, Hwang delivered the goods: notching 40-80% gains per annum..but then:

• 2008: despite managing an Asia fund, Hwang got badly burnt shorting Volkswagen (it jumped 348% in 2 days on a massive short squeeze)

• 2010: Investigated for a Chinese insider trading scheme
6/ In 2012, Hwang paid $44m to settle the Chinese insider trading scheme and closed his fund.

He returned money to investors and started Archegos Capital. Archegos is Greek for "leader" or "prince of Christ".

The fund (like his childhood) was religious w/ Friday Bible reads.
7/ Archegos began w/ $200m but grew quickly.

To juice returns, Hwang deployed a financial instrument known as a Total Return Swaps (TRS).

In exchange for a fee, he bet on the direction of a stock and gained exposure w/o paying full price (it effectively created 5x leverage)
8/ By 2021, he was leaning on 6 prime broker bank partners for his TRSs: Goldman, Morgan Stanley, Credit Suisse, Nomura, Deutsche, UBS.

Despite the potential risks, the banks were happy to take fees from such a whale.

Without realizing it, they created a financial time bomb...
9/ Due to the nature of the swaps, the prime brokers built up massive long positions in Archegos portfolio companies.

(eg. The banks reported owning 68% of Chinese ed-tech GSX and 29% of ViacomCBS)

While Archegos portfolio swelled to $15-20B, it's total exposure was $100B+.
10/ ViacomCBS was the trigger for Archegos' collapse.

From the TSRs, Hwang had a $10B stake in the media firm (its share price was up 8x in one year).

One Mar 22, Viacom announced a ~$3B secondary share sale. It led to a 20%+ selloff and put huge pressure on Hwang's portfolio.
11/ If a portfolio is levered 5x, it only takes a 15-20% sell-off to wipe an investor out.

Hwang's banks met and discovered the scale of Archegos' scheme. They could work together to unwind the swaps...or beat each other to the exits.

GS and Morgan peaced the F out..
12/ This meme beautifully describes Goldman's plan for unwinding its Archegos TSRs:
13/ On Mar 26, the banks exited the trades by selling large blocks of Archegos-linked companies ($20-30B in total).

ViacomCBS declined ~30% on the day.

Similar block sales in Shopify, Farfetch, Discovery and Chinese tech firms hammered the stocks.
14/ While Goldman got out in time, Nomura (-$2B) and Credit Suisse (-$3B) both took 9-figure losses.

Archegos saw $100B+ evaporate.

Hwang personally lost $8B in 10 days...some traders called it "the fastest loss of such a large sum they had ever seen."
15/ The suddenness of the collapse is shining light on family offices.

While large pools of money like hedge funds, pensions and endowments are accountable to external parties, family offices operate in secret with few disclosure requirements.

16/ Even though Archegos looks to be contained, family offices (and the banks dealing with them) are prepping for new rules.

After the '08-09 crisis, Dodd-Frank tightened financial regulation.

Archegos could lead to the same for family offices, swaps and prime brokers...
17/ Prior to the implosion, Hwang lived a modest life in Tenafly, NJ. He is an active philanthropist but largely unknown in the Wall Street scene.

88-year old Robertson (who has seeded the industry's top performers, known as "Tiger Cubs") says he'd still invest with Hwang.
18/ If you enjoyed this breakdown, smash that FOLLOW for other business gold: @TrungTPhan.

For a story about financial engineering that has lead to a POSITIVE outcome, check this thread:
19/ Sources

NYT: nytimes.com/2021/04/03/bus…
WSJ:wsj.com/articles/insid…
FT:ft.com/content/c31983…

20/ What’s absurd is that I just wrote about Lex Greensill’s blowup and said “this will be the biggest non-$GME finance scandal this year”.

Couldn’t even last a few weeks at the top of the financial shenanigans board:
21/ Here is a good explainer thread on TSRs.

They are widely used in the industry, but the way Archegos employed them were a bit sketch:
22/ This thread makes the argument for why Archegos could be signalling a systemic issue...namely, banks seem to facilitating highly risky behaviour again without adequate controls in place:
23/ Finally, if you’ve made it this far.

Here are investments that did NOT blow up:

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More from @TrungTPhan

Trung Phan Profile picture
Sep 19
PayPal’s bland logo redesign was inevitable
Image
If you are the person that did the un-aligned letters for the previous eBay logo, please contact the research app team. We are huge fans of how un-aligned the “e” is with the “y”.Bearly.AI
This article offers up reasons for popularity of simple font logos (mostly Sans Serif):

— Easier to standardize ads across mediums
— Improves readability (especially on mobile)
— The “brand” matters more than the logo velvetshark.com/why-do-brands-…
Read 4 tweets
Trung Phan Profile picture
Sep 1
Berkshire Hathaway board member Chris Davis once asked Charlie Munger why Costco didn’t drop the membership card.

Let anyone shop and raise prices by 2% (still great value), thus making up for lost membership fees (and more).

Munger said the card is important filter:

▫️“Think about who you’re keeping out [with a membership card]. Think about the cohort that won’t give you their license and their ID and get their picture taken.

Or they aren’t organized enough to do it, or they can’t do the math to realize [the value]…that cohort will have a 100% of your shoplifters and a 100% of your thieves. Now, it’ll also have most of your small tickets.

And that cohort relative to the US population will probably be shrinking as a % of GDP relative to the people that can do the math [on Costco’s value].”▫️

I have a membership but have been guffing on the math for a few years tbh. They keep telling me to upgrade from Gold to Business but I’m too lazy (even if the 2-3% Cash Back on Business pays back after a few trips).

This is a long way of saying Costco’s membership price hike effective today — its first in 7 years — is annoying but when I decide to do the math in a few months, it’ll be worth it.

***

Chris Davis’ remarks from this episode of The Knowledge Project: open.spotify.com/episode/6fJYHF…Image
Anyway, here is something I wrote about Costco’s $9B+ clothing business my affinity for Kirkland-branded socks and Puma gym shirts. readtrung.com/p/costcos-9b-c…
Two notes:

▫️Meant “Executive” (not “Business”) membership
▫️Chris Davis was doing a pure thought experiment. Costco membership obvi high margin (on~$5B a year) and accounts for majority of Costco profits. Retail margin is tiny on ~$230B of annual sales (Costco would need like another $150B+ from letting anyone shop to make up membership profits)Image
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Read 5 tweets
Trung Phan Profile picture
Aug 15
One of the Team USA rowers who won a Gold Medal is an investment banker and actually did the “B2B SaaS Sales” joke on Linkedin. Legend. Image
Here’s the rest of the post (perfectly formatted to show up in the feed as a shitpost): linkedin.com/feed/update/ur…
Image
Justin if you’re reading this and are available for consulting, the research app team would love to engage your B2B SaaS knowledge for our Q4 sales roadmapBearly.AI
Read 4 tweets
Trung Phan Profile picture
Aug 7
Explainer video on science of why the 400m sprint is considered the most painful track & field event.

And why “no person on the planet can run the 400m all out from start to finish".

The race pushes the way the body creates energy to the limit:

▫️0-50 meters: ATP-CP (energy system for very short and explosive movements; used up after 5-10 seconds)

▫️50-200 meters: Anaerobic glycolysis (burns glucose without oxygen, leading to lactic acid buildup and muscle fatigue)

▫️200-300 meters: Aerobic energy (uses oxygen to break down glucose, but cannot keep up with the demand)

▫️300-400 meters: Anaerobic energy reserves tapped while aerobic energy is too slow to fill the gaps (lactic acid buildup is going HAM)

Track athletes can pace for longer distances and shorter ones are just over quicker (obvs).

The Olympic record is a blazing 43:03, set by South African runner Wayde van Niekerk in 2016 (and 2024 Final race is tomorrow).

***

Full video from Outperform:
Usain Bolt ran the 400m early in career but then said training was “too hard”.

The 400m Hurdles is a world of pain too for similar reasons — Vox has a good vid on it:

Here is a great breakdown of Wayde van Niekerk’s record run:

Image
The 400m is also tough because you don’t get the benefit of an absolute baller like Bottle Klaus keeping hydrated
Read 5 tweets
Trung Phan Profile picture
Jul 20
The amount of work Hayao Miyazaki and Studio Ghibli team put into a film is mind-boggling.

Each typically has 60k-70k frames, all hand-drawn and painted with water color.

This 4-second clip (“The Wind Rises”) took one animator 15 months to do. Insane.
The docu “10 Years with Hayao Miyazaki” shows him talking to the animator (Eiji Yamamori) after its done.

It’s so good:

Miyazaki: “Good job.”
Yamamori: “It’s so short, though”
Miyazaki: “But it was worth it.”

The animator gets a second of joy (he’s pumped) but on to the next.
Miyazaki doesn’t use digital FX or computer graphics. He believes “that the tool of an animator is the pencil.”

On a related note, here’s something I wrote about another Japanese legend dedicated to the craft (Ichiro Suzuki) and the art of mastery: readtrung.com/p/jerry-seinfe…
Read 4 tweets
Trung Phan Profile picture
Jul 9
New York City paid Mckinsey $4m to conduct a feasibility study on whether trash bins are better than leaving garbage on the street.

The deck is 95-slides long and titled “The Future of Trash”.

Some highlights:

▫️The official term is “containerization”, which is the “storage of waste in sealed, rodent-proof receptacles rather than in plastic bags placed directly on the curb.”

▫️Two main types of containerization: 1) individual bins for low density locales; 2) shared containers for high-density.

▫️NYC needs to clean up 24,000,000lbs of garbage a day

▫️Containerization has only become the norm worldwide in major cities in the past 15 years.

▫️New York City first considered containerization in the 1970s but never conducted a feasibility study until now (Mckinsey’s sales team has been dropping the ball)

▫️Key considerations for container viability:

• POPULATION DENSITY: NYC has 30k residents per square mile (more dense than comparable big cities)

• BUILT ENVIRONMENT: Few places to “hide” containers due to history of infrastructure development.

• WEATHER: Snow creates challenges for “mechanized collection” in the winter.

• CURB SPACE: Mostly taken up by bus stops, bike lanes, outdoor dining and fire hydrants.

• COLLECTION FREQUENCY: NYC needs to double frequency of pick-up for estimated speed of trash that bins would accumulate.

• FLEET: A new garbage truck will needs to be designed to collect rolling bins at scale.

▫️ The proposed solution (literally garbage bins and shared containers) covers 89% of NYC streets and 77% of residential tonnage.

▫️The three case studies — because you gotta have solid case studies — are Amsterdam, Paris and Barcelona.

▫️There is a slide called “Why containerization matters” and three reasons are “rats”, “pedestrian obstruction” and “dirty streets” (the 21-year intern that did this slide billed at prob $10k an hour is my hero).

The study is actually pretty interesting.

I have no idea if $4m is a rip-off to learn that “yeah, we should put garbage in bins so rats don’t eat it” but I would have happily done it for 10-20% of that budget (and come to a similar conclusion).Image
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It is actually an interesting deck. Just the thought of a 20-year old newly grad getting billed at an obscene rate to say”rats get to garbage” is kinda funny

Four more solid slides:
— By the numbers (daily garbage = 140 Statue of Liberty a day!!)
— City comparison
— Container comparison (looks like they did select the “scalable” trash bin)
— Curb side analysis

Full deck here: dsny.cityofnewyork.us/wp-content/upl…Image
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Think Mckinsey telling NY to “put garbage in bins so rats don’t eat it and people can walk” will work out better than when it told AT&T in 1981 that cellphones would be “niche.”

That cost AT&T $13B and one worst business predictions ever as I wrote here: readtrung.com/p/the-worst-te…
Read 6 tweets

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