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He Built a $10 Billion Investment Firm. It Fell Apart in Days. – The New York Times

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Until recently, Bill Hwang sat atop one of the biggest — and perhaps least known — fortunes on Wall Street. Then his luck ran out.

Mr. Hwang, a 57-year-old veteran investor, managed $10 billion through his private investment firm, Archegos Capital Management. He borrowed billions of dollars from Wall Street banks to build enormous positions in a few American and Chinese stocks. By mid-March, Mr. Hwang was the financial force behind $20 billion in shares of ViacomCBS, effectively making him the media company’s single largest institutional shareholder. But few knew about his total exposure, since the shares were mostly held through complex financial instruments, called derivatives, created by the banks.

That changed in late March, after shares of ViacomCBS fell precipitously and the lenders demanded their money. When Archegos couldn’t pay, they seized its assets and sold them off, leading to one of the biggest implosions of an investment firm since the 2008 financial crisis.

Almost overnight, Mr. Hwang’s personal wealth shriveled. It’s a tale as old as Wall Street itself, where the right combination of ambition, savvy and timing can generate fantastic profits — only to crumble in an instant when conditions change.

“That whole affair is indicative of the loose regulatory environment over the last several years,” said Charles Geisst, a historian of Wall Street. “Archegos was able to hide its identity from regulators by leveraging through banks in what has to be the best example of shadow trading.”

The meltdown of Mr. Hwang’s firm had ripple effects. Two of his bank lenders have revealed billions of dollars in losses. ViacomCBS saw its share price halved in a week. The Securities and Exchange Commission opened a preliminary inquiry into Archegos, two people familiar with the matter said, and market watchers are calling for tougher oversight of family offices like Mr. Hwang’s — private investment vehicles of the wealthy that are estimated to control several trillion dollars in assets. Others are calling for more transparency in the market for the kind of derivatives sold to Archegos.

Mr. Hwang declined to comment for this article.

His is a proverbial American rags-to-riches story. Born in South Korea, Mr. Hwang moved to Las Vegas in 1982 as a high school student. He spoke little English, and his first job was as a cook at a McDonald’s on the Strip. Within a year, his father, a pastor, had died. He and his mother moved to Los Angeles, where he studied economics at the University of California, Los Angeles, but found himself distracted by the excitement of nearby Santa Monica, Hollywood and Beverly Hills.

“I always blame people who set up U.C.L.A. in such a nice neighborhood,” he told congregants at Promise International Fellowship, a church in Flushing, Queens, in a 2019 speech. “I couldn’t go to school that much, to be honest.”

Carnegie Mellon University, where Mr. Hwang received his master’s degree after studying economics at U.C.L.A.
Kristian Thacker for The New York Times

He graduated — barely, he said — and pursued a master of business administration at Carnegie Mellon University in Pittsburgh. He then worked for about six years at a South Korean financial-services firm in New York, eventually landing a plum job as an investment adviser for Julian Robertson, the respected stock investor whose Tiger Management, founded in 1980, was considered a hedge fund pioneer.

After Mr. Robertson closed the New York fund to outside investors in 2000, he helped seed Mr. Hwang’s own hedge fund, Tiger Asia, which focused on Asian stocks and quickly grew, at one point managing $3 billion for outside investors.

Mr. Hwang was known for swinging big. He made large, concentrated bets on shares in South Korea, Japan, China and elsewhere, using ample amounts of borrowed money — or leverage — that could both supercharge his returns or, in turn, wipe out his positions.

He was more modest in his personal life. The house that he and his wife, Becky, bought in Tenafly N.J., an upscale suburb, is valued at about $3 million — humble by Wall Street standards. A religious man, Mr. Hwang established the Grace and Mercy Foundation, a New York-based nonprofit that sponsors Bible readings and religious book clubs, growing it to $500 million in assets from $70 million in under a decade. The foundation has donated tens of millions of dollars to Christian organizations.

“He’s giving ridiculous amounts,” said John Bai, a co-founder and managing partner of the equity research firm Fundstrat Global Advisors, who has known Mr. Hwang for roughly three decades. “But he’s doing it in a very unassuming, humble, non-boastful way.”

But in his investing approach, he embraced risk and his firm ran afoul of regulators. In 2008, Tiger Asia lost money when the investment bank Lehman Brothers filed for bankruptcy at the peak of the financial crisis. The next year, Hong Kong regulators accused the fund of using confidential information it had received to trade some Chinese stocks.

In 2012, Mr. Hwang reached a civil settlement with U.S. securities regulators in a separate insider trading investigation and was fined $44 million. That same year, Tiger Asia pleaded guilty to federal insider-trading charges in the same investigation and returned money to its investors. Mr. Hwang was barred from managing public money for at least five years. Regulators formally lifted the ban last year.

Shortly after shuttering Tiger Asia, Mr. Hwang opened Archegos, named after the Greek word for leader or prince. The new firm, which also invested in both U.S. and Asian stocks, was similar to a hedge fund, but its assets were made up entirely of Mr. Hwang’s personal wealth and that of certain family members. The arrangement shielded Archegos from regulatory scrutiny because of its lack of public investors.

Goldman Sachs, which had lent to him at Tiger Asia, initially refused to deal with Archegos. JPMorgan Chase, another “prime broker,” or large lender to trading firms, also stayed away. But as the firm grew, eventually reaching more than $10 billion in assets, according to someone familiar with the size of its holdings, its lure became irresistible. Archegos was trading stocks on two continents, and banks could charge sizable fees on the trades they helped arrange.

Arnd Wiegmann/Reuters

Goldman later changed course, and in 2020 became a prime broker to the firm alongside Credit Suisse and Morgan Stanley. Nomura also worked with him. JPMorgan refused.

By the beginning of this year, Mr. Hwang had grown fond of a handful of stocks: ViacomCBS, which had pinned high hopes on its nascent streaming service; Discovery, another media company; and Chinese stocks including the e-cigarette company RLX Technologies and the education company GSX Techedu.

Trading at roughly $12 a little over a year ago, ViacomCBS’s stock rose to about $50 by January. Mr. Hwang kept amassing his stake, people familiar with his trading said, through complex positions he arranged with banks called “swaps,” which gave him the economic exposure and returns — but not the actual ownership — of the stock.

By mid-March, as the stock moved toward $100, Mr. Hwang had become the single largest institutional investor in ViacomCBS, according to those people and a New York Times analysis of public filings. The people valued the position at $20 billion. But because Archegos’s stake was bolstered by borrowed money, if ViacomCBS shares unexpectedly reversed he would have to pay the banks to cover the losses or be quickly wiped out.

Brendan Mcdermid/Reuters

On Monday, March 22, ViacomCBS announced plans to sell new shares to the public, a deal it hoped would generate $3 billion in new cash to fund its strategic plans. Morgan Stanley was running the deal. As bankers canvassed the investor community, they were counting on Mr. Hwang to be the anchor investor who would buy at least $300 million of the shares, four people involved with the offering said.

But sometime between the deal’s announcement and its completion that Wednesday morning, Mr. Hwang changed plans. The reasons aren’t entirely clear, but RLX, the Chinese e-cigarette company, and GSX, the education company, had both spiraled in Asian markets around the same time. His decision caused the ViacomCBS fund-raising effort to end with $2.65 billion in new capital, significantly short of the original target.

ViacomCBS executives hadn’t known of Mr. Hwang’s enormous influence on the company’s share price, nor that he had canceled plans to invest in the share offering, until after it was completed, two people close to ViacomCBS said. They were frustrated to hear of it, the people said. At the same time, investors who had received larger-than-expected stakes in the new share offering and had seen it fall short, were selling the stock, driving its price down even further. (Morgan Stanley declined to comment.)

By Thursday, March 25, Archegos was in critical condition. ViacomCBS’s plummeting stock price was setting off “margin calls,” or demands for additional cash or assets, from its prime brokers that the firm couldn’t fully meet. Hoping to buy time, Archegos called a meeting with its lenders, asking for patience as it unloaded assets quietly, a person close to the firm said.

Emon Hassan for The New York Times

Those hopes were dashed. Sensing imminent failure, Goldman began selling Archegos’s assets the next morning, followed by Morgan Stanley, to recoup their money. Other banks soon followed.

As ViacomCBS shares flooded onto the market that Friday because of the banks’ enormous sales, Mr. Hwang’s wealth plummeted. Credit Suisse, which had acted too slowly to stanch the damage, announced the possibility of significant losses; Nomura announced as much as $2 billion in losses. Goldman finished unwinding its position but did not record a loss, a person familiar with the matter said. ViacomCBS shares are down more than 50 percent since hitting their peak on March 22.

Mr. Hwang has laid low, issuing only a short statement calling this a “challenging time” for Archegos.

Kitty Bennett contributed research.

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British Columbia tackles innovation investment gap – The Globe and Mail

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Lt.- Gov. Janet Austin delivers the Throne Speech at Legislature in Victoria, B.C., April 12, 2021.

CHAD HIPOLITO/The Canadian Press

The B.C. government will create its own investment fund to help promising B.C. companies scale up and keep jobs here at home, as part of its post-pandemic recovery plan.

The InBC strategic investment fund, announced in Monday’s Throne Speech, will be administered by a new Crown corporation. The initiative is designed to respond to concerns that the province’s world-leading innovations in sectors such as life sciences are consistently flowing to other jurisdictions with better investment climates.

The Throne Speech, read by Lieutenant-Governor Janet Austin, offers a self-congratulatory account of the government’s response to the health and economic challenges brought by COVID-19 over the past year, and acknowledges that the province is still in the grips of the pandemic. But it also focuses on plans to rebuild the economy.

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“We open this sitting of the legislature at a turning point in our fight to end the pandemic,” she read. “The threat of new variants means we cannot relax, even as your government accelerates the largest mass-immunization program in B.C.’s history.”

Ms. Austin cited the province’s contributions to the global effort to fight COVID-19, noting that its life-sciences companies have helped develop a vaccine and a treatment for the virus, as well as the development of an ICU ventilator for use in Canadian hospitals.

“Their work will not only help bring us out of the pandemic, it will position our province for success in the years ahead,” she said.

The speech predicts the province will find continued growth in trade. “Global markets are changing in ways that offer significant opportunities for B.C.’s goods and services. Prices are expected to continue to reflect environmental, social and governance aspects of production,” it states. “British Columbia firms will be able to take advantage of a premium paid for inclusive and sustainable products.”

But leaders in health sciences and the high-tech sectors have noted that B.C., while it excels in research and development, fails to foster a business environment where those innovations can stay and grow.

Quebec and Ontario have helped secure life sciences investments by partnering with Ottawa to offer incentives. Most recently, the global pharmaceutical giant Sanofi unveiled its plans to build an influenza vaccine manufacturing facility in Toronto, after the federal government and the province of Ontario committed to invest close to half a billion dollars in the project.

The B.C. government provided no detail on the new investment fund on Monday, and it is unclear how the new agency will assist. “This new strategic fund will help promising B.C. companies scale up, anchor talent – keeping jobs and investment at home in British Columbia,” it reads.

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It also promises additional funding to address the challenges that COVID-19 has exposed for the homeless, for health care and for seniors in long-term care. “In the year ahead, your government will continue to improve care for seniors by hiring thousands of new workers for long-term care and fixing the cracks COVID-19 has exposed.”

The Throne Speech also promises initiatives to assist British Columbians who struggle with the cost of living. The budget, which will be introduced on April 20, will include funds to help get thousands of rental homes built throughout the province, and will expand access to the province’s $10-a-day daycare spaces.

The government is also promising changes to its vehicle insurance rates through the Insurance Corporation of B.C. ICBC will deliver a 20-per-cent cut to car insurance rates, in addition to the COVID-19 rebate that was issued earlier this year.

We have a weekly Western Canada newsletter written by our B.C. and Alberta bureau chiefs, providing a comprehensive package of the news you need to know about the region and its place in the issues facing Canada. Sign up today.

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eBay Is Helping Gen-Y and Gen-Z Get Their Investment Kicks – Forbes

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At a time when Sotheby’s is auctioning off rare sneakers, you know the nature of investing has changed. Those changes are coming as Generations Y and Z are looking to invest in what they love, while changing the nature of what investment-grade goods look like.

eBay, for one has been leading the charge and looks to remain the go-to agent for its monetization. And, to combat counterfeiting while supporting the segment’s growth, the online marketplace is innovating. eBay has begun a series of pop-up authentication events, intended to give their collectors and sellers a new source to both authenticate and value their rare kicks, as well as high-end watches, and collector cards.

Sneakers and watches are two of eBays most popular luxury categories. There are more than a half-million sneaker listings on eBay, and over 165,00 luxury watches listed on any given day. And over the past year the marketplace saw a 10 percent increase for high-end time pieces like Rolex, whose sales have jumped 60 percent since 2019.

Authentication Station

The on-site authentication events are an extension of the recently expanded “Authentication Guarantee” services that eBay offers, utilizing an independent team of industry experts. It’s the same group that authenticated a $1 million pair of 1985 Air Jordon 1’s, signed by non-other than the “Air-apparent” himself.  

The program first launched in LA’s Koreatown, back in November 2020 in a vintage, fifties-looking converted gas station. Participants handed the goods off to an attendant, who brought the items in to the inspection teams. The process was in full view via large outside screens, and successful assessments earned an eBay Authentication Guarantee. Participants were able to receive “on the spot” offers or elected to list the items themselves.

The East-Hollywood, LA experiment was successful enough to replicate. And pop-up authentication events took place this past Friday and Saturday in Atlanta. They are expected to again be replicated in Las Vegas, Seattle, Nashville, and Austin in coming weeks. Admissions to the events are free, without an appointment.

Playing A New Card

In a parallel effort, by late April eBay will add an imaging listing tool to its mobile app, designed to facilitate more efficient listings of trading cards. This is another category that has evolved from mere collecting to high-buck investing.

Beginning in late April 2021, eBay plans to launch an image listing tool in its mobile app to initially support Magic the Gathering cards and ultimately Pokémon and Yu-Gi-Oh! as well.  Users will point their camera at the card and hold to scan. A list of possible matches will pop-up, along with details on game name, title, card set, number and rarity. After tapping the closest match, the user can add their details and pricing to post. eBay plans to add other collectable and trading cards to the offering later in 2021.

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Joe Biden tax plan affect US investment in Ireland?

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Wander around Dublin’s Grand Canal Quay and you get a sense of how successful the Republic of Ireland has been in attracting US technology companies.

Google has its international headquarters across a campus of offices and will soon have more space nearby at the Boland’s Mill development.

Just across the canal, Facebook has its international HQ with Tripadvisor and AirBnB close by.

Stripe, the United States-based payments firm, could soon be in the area.

Last month its Irish founders said they’re planning about 1,000 new jobs in Ireland.

The head of the country’s inward investment agency, Martin Shanahan, described the Stripe investment as a “phenomenal signal from Ireland and about Ireland”.

But there’s now a risk that the pipeline of investment from the US could dry up if President Joe Biden can lead a major change to global tax rules.

Irish tax advantage under threat

In among those tech company HQs in Dublin’s docklands, you will also find the offices of the lawyers and accountants who help US firms use Ireland’s tax system to reduce their global tax bills.

For the last 20 years Ireland has had a simple message: invest here and you will pay just 12.5% tax on your Irish profits.

That compares favourably to headline corporation tax rates of 19% in the UK, 30% in Germany and 26.5% in Canada.

It is an article of faith in Irish politics that the 12.5% rate has been vital to attracting US investment.

But that tax advantage could be seriously undermined if President Biden gets his way.

 

Google head office Dublin

 

The most striking of his proposals – and the one of most consequence for Ireland – is for a global minimum corporate tax rate.

The US Treasury Secretary Janet Yellen has suggested a 21% minimum rate.

“We are working with G20 nations to agree to a global minimum corporate tax rate that can stop the race to the bottom,” she said in a speech last week.

“Together we can use a global minimum tax to make sure the global economy thrives based on a more level playing field in the taxation of multinational corporations.”

What would it mean for Ireland’s economy?

Essentially that would mean if a company paid tax at the lower Irish rate, then the US (or other countries) could top up that company’s tax in their jurisdiction to get it to the global minimum.

So if a US company had a presence in Ireland primarily for the tax advantage, that advantage would disappear.

This is a matter of urgency for the Biden administration because it is planning to raise corporate taxes at home and would prefer not to see more tax revenues leaking to other countries.

Peter Vale, tax partner with accounting firm Grant Thornton in Dublin, thinks a global minimum rate is now an inevitability.

“If you’d asked me six months ago I’d have been quite sceptical, there was a lot of opposition,” he said.

“But it’s now moving by the day and, with the US behind it with its plans, I think we’re going to arrive at some sort of global consensus.”

He said the key issue for Ireland becomes the level at which the rate is set.

“I don’t think 21% is where it will land, I suspect it will be somewhere in the teens.”

 

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Other details will be important too: “Exactly how will you work out what the rate is a company is paying in Ireland and what does that mean in terms of any top up? The detail becomes pretty critical.”

The Biden proposals have reinvigorated work which is being led by the OECD (Organisation for Economic Co-operation and Development), an intergovernmental economic organisation.

It began a project known as Base Erosion and Profit Shifting (BEPS) in 2013, which aims to mitigate tax loopholes which currently allow companies to shift profits from higher tax countries to lower tax countries like Ireland.

‘Intention to target Ireland’

Perhaps ironically Ireland appears to have been a major beneficiary of some of the early outcomes of the BEPS project.

The country’s corporation tax receipts have soared from about €4bn (£3.5bn) in 2013 to around €12bn (£10.5bn) in 2020.

That is the principle that companies should declare their profits in the location where they have real operations or activities.

“Countries like Ireland have been a huge winner from BEPS mark one,” he said.

“The objective was to align profit with substance and we actually are one of the countries where these companies have substance, whether it be pharmaceuticals, computer chips, medical devices and the ICT companies.

“I think when countries in the G7 looked at this they thought ‘that’s not quite what we wanted’ – maybe the intention was to target countries like Ireland, not benefit them.”

When could we see an impact?

In the next round of BEPS, with the US on board, those other rich countries are more likely to get what they want at Ireland’s expense.

But even if President Biden can agree the reforms at home and abroad, how quickly would that have an impact in Ireland?

Mr Coffey thinks any negative effects would not be instant because tax is not everything.

“Are the ICT companies likely to head off around the world, scattering their headquarters to various different cities?” he said.

“There are benefits to being co-located. At least in the medium term we are not likely to see a huge shock.”

That is echoed by the IDA (Industrial Development Authority), the inward investment agency, which points to Ireland’s workforce and significant clusters of specialisation in areas like medical technology and pharmaceuticals.

The IDA also sees the Brexit angle, pointing out that Ireland, unlike its UK neighbour, is part of the EU’s single market.

In a statement, it said: “Ireland is at the heart of Europe. Ireland’s continued commitment to the EU is a core part of Ireland’s value proposition to foreign investors, offering a base to access the European Single Market and to grow their business.

“Ireland also benefits from free movement of people within the EU, giving businesses located in Ireland access to a European labour market.”

The Irish government has been engaged in the BEPS process, though in a speech last year the Finance Minister, Pascal Donohoe, said he remained to be convinced of the need for minimum taxation, beyond the specific challenges relating to the digital economy.

This week a government spokesman said: “Ireland is aware of the US proposals.

“We are constructively engaging in these discussions, and will consider any proposals carefully noting that political level discussions on these issues have not yet taken place with the 139 countries involved in this process.”

Source: – BBC News

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