The Archegos Capital debacle has exposed the hidden risks of the lucrative but opaque equity derivatives business through which banks empower hedge funds to make outsize bets on stocks and related assets.
The soured wagers made by Bill Hwang’s family office have triggered significant losses at Credit Suisse and Nomura, underscoring how these tools can cause a chain reaction that cascades across financial markets.
Archegos was able to take on tens of billions of dollars of exposure to stocks including ViacomCBS through total return swaps, a type of “synthetic” financing that is popular with hedge funds since it allows them to make very large bets without buying the shares or disclosing their positions.
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