Archegos: Difference between revisions

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 CURTAIN}}
-===Concerns about Archegos===
+===Archegos’ reputation and competence===
-[[File:Archegos NAV to 2020.png|alt=Archegos NAV 2012-2020|350px|right|thumb|Archegos’ performance between 2012 and 2020 was ''all over the shop''...]][[File:Archegos NAV to armageddon.png|350px|right|thumb|... and then it got ''worse''.<ref>Figures taken from the {{CS report}}</ref>]]What emphasis should you place on a record of misfeasance and bad management? A lot, you would think. [[All other things being equal]], be more careful with those who have proved themselves cavalier with ethical boundaries than those who have not. (Though, ''pace'' [[Nassim Nicholas Taleb]]: “he who has never sinned is less reliable than he who has only sinned once.”)<ref>''[[Antifragile: Things that Gain from Disorder]]''... but only because you ''know'' him to be a potential sinner; she who is entirely without sin ''may'' be a saint, or it may just be she hasn’t sinned — or been caught — ''yet''.</ref>
+[[File:Archegos NAV to 2020.png|alt=Archegos NAV 2012-2020|350px|right|thumb|Archegos’ performance between 2012 and 2020 was ''all over the shop''...]][[File:Archegos NAV to armageddon.png|350px|right|thumb|... and then it got ''worse''.<ref>Figures taken from the {{CS report}}</ref>]]What emphasis should you place on a record of misfeasance and bad management?
+A lot, you would think. [[All other things being equal]], be more careful with those who have proved themselves cavalier with ethical boundaries than those who have not (though, ''pace'' [[Nassim Nicholas Taleb]]: “he who has never sinned is less reliable than he who has only sinned once”).<ref>''[[Antifragile: Things that Gain from Disorder]]''... but only because you ''know'' him to be a potential sinner; she who is entirely without sin ''may'' be a saint, or it may just be she hasn’t sinned — or been caught — ''yet''.</ref>
 Archegos had ''plenty'' of form for misfeasance — outright criminality, in fact — ''and'' mismanagement.
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 :—SEC press release, 12 December 1012 <ref>https://www.sec.gov/news/press-release/2012-2012-264htm</ref>}}
-And nor was Archegos’ performance through time anything to crow about. Over the 10 years between the insider trading debacle and the final collapse, Archegos suffered multiple massive drawdowns.
+And nor was Archegos’ performance (before or after that time) anything to crow about. Over the 10 years between Hwang’s insider trading debacle and the final collapse, Archegos suffered multiple massive drawdowns (see right). Archegos’ published [[net asset value]]<ref>Note: this data is incomplete: what I have all comes from the {{CS report}}.</ref> gyrates wildly. If someone asked you to imagine the pattern you might expect from a blindfolded, monkey throwing darts at the financial pages while hopped up to the eyeballs with gradually increasing leverage (thanks, Credit Suisse!), this is pretty much exactly what you’d expect it to look like.
-Archegos’ published [[net asset value]] (note this data is incomplete: what I have comes from the {{CS report}}) gyrates wildly. If someone asked you to imagine the pattern you might expect from a blindfolded, monkey throwing darts at the financial pages while hopped up to the eyeballs with gradually increasing leverage (thanks, Credit Suisse!), then this is pretty much exactly what you’d expect it to look like. To be sure, over time, it does trend up, but there are gaping chasms between the peaks — and in any case that’s [[survivor bias]] right there: the game stops the moment you hit zero. In any case
+To be sure, over time, it does trend up, but there are gaping chasms between the peaks — and in any case that’s [[survivor bias]] right there: the game stops the moment you hit zero. So Archegos looked — ''always'' looked — decidedly flakey.
-Dunno about you, but if one of my clients, was that erratic  and trading in that size, I’d have a S.W.A.T. team on every overlooking roof. Especially a client with form for insider trading: isn’t the point that you are backing surefire winners? Yet this was not how CS saw it.
+Now, I dunno about you, but if one of my customers was that erratic, trading in that size, I’d have a S.W.A.T. team positioned on every nearby roof. Especially a customer with form for insider trading: isn’t the point that you are backing surefire winners?
-Not that any of this stopped the CS Risk team portraying Archegos to its own reputational risk committee as a client with “strong market performance” and “[[best in class]]”  infrastructure and compliance.
+Yet this was not how CS saw it. Archegos got to reputational committees, but the business portrayed Archegos to as a client with “strong market performance” and “[[best in class]]”  infrastructure and compliance. Even though, as early as 2012 the credit team had identified Archegos’ [[key man]] risk, volatility, mediocre operational management practices, fraud risk, and poor risk management as “significant concerns”.
-*'''Skill''':   Extreme volatility which sounds like Huang had no real skill as a money manager, and was rather riding around like a child holding a firehose of leverage.
-*'''Controls''': As early as 2012 the Credit team had identified Archegos’ [[key man]] risk (in Huang), volatility, mediocre operational management practices, fraud risk, and poor risk management as significant concerns.
 ===Mis-margining===