Japan’s Nomura Holdings is considering to bond in another partnership with Bill Hwang and his Tiger Asia Management new family office, Archegos Capital Management.
This will not be the first partnership for Nomura and Hwang. To be exact, Nomura and Hwang’s Tiger Asia Management had a relationship. Tiger Asia Management’s shut down in 2012, however, cut the tie between both sides. At that time, US and Hong Kong regulators caught Hwang’s Tiger Asia Management LLC for insider trading of Chinese stocks. Accordingly, the firm has received punishment for the deed.
Ever since, Nomura did not resume its business relationship with Hwang. Not even Hwang’s new family office, Archegos Capital Management. Though, it seems that Nomura is considering recruiting back Hwang due to what Reuters quotes “Hwang’s appetite for huge bets on technology, media and other company stocks in the United States and Asia” which is “proved too lucrative to resist”.
Nomura: Considerations in choosing Hwang and Archegos
A professional hedge fund investor familiar with Hwang’s career told Reuters to consider Hwang as a “super aggressive” investor. He utilized leverage to amplify his bets. Thus, Hwang would hold stock positions worth more than $50 billion despite a $10 billion of funds assets on his hand.
Hwang did that by buying derivatives. Also known as total return swaps, it gives investors the chance to bet on stock price moves with low to none underlying securities, Reuters notes. Hwang’s signature move is proven to produce “staggering returns,” and was a notably profitable account for banks.
While some think highly of Hwang’s method, some others think Hwang is exploiting his status as a top client. Hwang is pushing banks to reduce their collateral requirements with this method. Despite all the pros and cons regarding Hwang and his method to generate profit, quite numerous banks have expressed their interest in Hwang’s business.
According to two sources from Reuters, Archegos has successfully grown into one of the ten most profitable clients for the bank’s US operations. Though, some banks still chose to take careful and cautious steps in approaching Archegos, including Nomura.
Archegos’ trade relationships with multiple banks are causing banks to take cautions in the firm. This is quite a risk-taking strategy, as particular stock positions could greatly affect Archegos’ leverage. Additionally, a source from Reuters said that Archegos had limited disclosure requirements. Thus, banks have low awareness of the full extent of the company’s leverage.
Currently, none of the representatives from Nomura, Hwang nor Archegos have given comments on the circulating rumours.
Read also: Nomura Holdings Might Suffer From a Grand Loss
Follow and join us on Youtube, Instagram, Facebook, and Twitter to be part of the trader community in Asia
