- Guggenheim’s Scott Minerd said financial markets may be in for yet another hedge fund implosion.
- “It is highly likely that we are going to have another situation like that,” he said of the Archegos meltdown.
- Minerd expects family offices and the SPAC market to face more regulatory oversight.
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Guggenheim’s global chief investment officer Scott Minerd told Bloomberg in an interview on Monday that another hedge fund liquidation similar to Bill Hwang’s Archegos Capital is possible.
“It is highly likely that we are going to have another situation like that,” he said in the interview. Situations in which major losses triggered by Archegos hit banks like Credit Suisse and Nomura, “tend to continue to cascade until the market corrects and flushes the risk out of the system,” Minerd said.
Archegos, the family office run by former “Tiger cub” Hwang, is the seemingly low-profile fund that recently sent shockwaves across global markets. Hwang’s firm made some big bets using leverage from banks that stood to make money by way of commissions and fees.
But the fund collapsed after bets it made in stocks like ViacomCBS, Baidu, and Tencent tumbled, prompting the banks holding these stocks as collateral to figure out that Hwang presumably didn’t have the required margin to pledge. That meant he could default on obligations, forcing lenders to quickly liquidate their positions.
Credit Suisse warned it expects to take a $4.6 billion hit after the fiasco, while Nomura expects a relatively lower $2 billion loss. Goldman Sachs and Morgan Stanley meanwhile said their losses would be immaterial, showing how some banks simply fared better than others by moving to sell their positions early.
Family offices like Archegos manage private wealth of wealthy families and individuals worth billions of dollars. Since they’re privately-controlled, they less regulated than hedge funds, which make similarly risky bets but take money from outside investors. That means family offices mostly not required to make many of the same disclosures that are required of other investment managers.
The Securities and Exchange Commission last week opened an investigation into the Archegos liquidation, Bloomberg reported.
Minerd expects more surveillance of family offices. He also said there’s more regulation coming for the
SPAC
market, owing to hiccups created by differences in earnings estimates and actual deliveries.
“I just see us as being very, very vulnerable to something coming out of the blue that nobody is really anticipating and can’t be predicted,” Minerd said.
