Just three months after investor Bill Hwang’s investment firm imploded — leaving Wall Street with billions of dollars in losses — two Archegos Capital staffers are gearing up to test the strategy all over again, The Post has learned.
Jensen Ko and Sterling Clay, who worked at Archegos until its epic collapse in March, are quietly preparing to launch a new fund using their former boss’s highly leveraged investment style, people with direct knowledge of the plans told The Post.
“The strategy worked until it didn’t…. but it worked,” a source close to one of the Archegos alumni told The Post in explaining their thinking.
Indeed, in autopsying Archegos, Bloomberg deemed Hwang “the greatest trader you’d never heard of” for turning his $200 million personal wealth into a massive $20 billion in the span of less than eight years.
Ko and Clay plan to use their own money over the next year to establish a track record of lucrative but reliable investments with the goal of eventually raising money from outside investors, according to people with direct knowledge.
The Post was unable to confirm how much the pair have to invest, but people close to them estimated it could be close to $50 million.
Ko, who didn’t respond to a request for comment, worked at Archegos with Hwang for 13 years as chief operating officer, and later as its chief technology officer, according to his LinkedIn profile. Clay, who declined to comment, was an associate director at Archegos for two years, according to LinkedIn.
The men, along with other Archegos staffers, were summarily let go in March after the firm’s investments collapsed, sources said.
To be sure, efforts to replicate Hwang may be tempting for some investors.
A former protégé of famed investor Julian Robertson, Hwang opened his family office in 2013 after shuttering two hedge funds following an SEC insider trading probe in 2012. And within a few short years, he built the modest operation to a multibillion-dollar empire with ambitions that stood to catapult Hwang to becoming one of the richest men on earth.
But the investment strategy behind Hwang’s success also led his investment empire to come crashing down in spectacular fashion over the course of just a few days. Because Hwang was managing his own money through what is known in industry parlance as a family office, he was able to make under-the-radar risky bets that caught even his big bank lenders off guard.
When the massive bets he’d made on ViacomCBS and Discovery went south, he was unable to meet his margin calls forcing his brokers to liquidate their positions — and his collateral — as quickly as possible.
The move spurred a frantic, market-melting fire sale that left banks six banks with more than $10 billion in losses. Credit Suisse lost more than $5 billion and Japanese bank Nomura lost more than $3 billion. US banks like Goldman Sachs were quicker to get out of their positions and escaped the incident largely unscathed.
Morgan Stanley, Credit Suisse and Nomura have all since replaced their prime brokerage chiefs in the wake of the destruction, while the Department of Justice and the Securities and Exchange Commission have both opened investigations to understand how one person could have controlled so much stock without disclosing it.
Ko and Clay are hopeful they can learn from his mistakes and capitalize on the successes without flying too close to the sun, sources said.
But they may now find it more difficult to scale their venture to the size of Archegos because burned banks will want to avoid making the same mistakes, sources said. And the fund’s tarnished record may make it difficult for Ko and Clay to raise money from outside investors.
“I think being an alumnus of Archegos will make it difficult,” Columbia University Law School professor John Coffee tells The Post. “It is a little like having been the lookout on the Titanic and applying for similar work.”
The two could also face regulatory hurdles. While people close to Hwang are quick to note there’s no evidence he did anything illegal and they say they are unaware of any criminal investigations, the probes into Archegos could lead to stricter rules for family offices.
“It’s possible for FINRA to take certain disciplinary actions that can extend to investment advisors who may be serving in some capacities.” Columbia Law Professor Joshua Mitts advises. “But at the moment it’s not clear what the liability, if any, would be.”
A spokesperson for Archegos did not respond to request for comment.