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- Bill Hwang's Archegos owes $500 million in deferred bonus payments to employees, the FT reported Wednesday.
- Under a payment plan, Archegos employees are meant to receive a chunk of their annual bonuses once they leave the investment fund.
- Sources told the FT that "the money is gone" with "no pot of gold to pay them from."
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Employees of Archegos Capital Management stand to lose a total of as much as half-a-billion dollars after the investment fund's collapse shrank the value of their deferred bonuses, the Financial Times reported on Wednesday.
Archegos, the family office of Bill Hwang, imploded in March when some of the former Tiger Capital Management portfolio manager's highly leveraged bets started to come apart and his lenders sold some of his investments.
The company had set up a deferred payment plan under which a large chunk of annual bonuses were held off, with a guarantee to be paid out once a staffer left, the report said.
After employee contributions, the payment plan was originally worth under $50 million. But its value fluctuated depending on the performance of the firm's main investment fund, the FT said, citing a source familiar with the matter.
The value of the deferred bonuses shot up to about $500 million before Archegos ran into trouble, two sources told the FT. The fund's meltdown has now left it owing money even to former employees.
"The company will increase or decrease the amount of the deferred payment by the percentage that the fund's invested capital has increased or decreased in value," the terms of the payment plan state, according to a document seen by the FT.
The participants saw 25% of their end-of-year bonus held aside under the plan, to be paid out on departure from Archegos. The document said the bonus would not fall below its original value.
Still, some ex-employees are yet to receive their deferred bonus payments. The FT cited sources saying "the money is gone" with "no pot of gold to pay them from."
Hwang was a notable and successful hedge fund manager until he ran afoul of the SEC to face insider trading charges. He transformed his hedge fund, which managed money for other people, into a family office managing his own wealth, meaning fewer regulatory disclosures were required.
Archegos began using large amounts of leverage, or borrowed money, to fund its investments as it chased higher returns. It used this approach to buy billions of dollars' worth of stock, only to face large losses when those shares declined.
The fund was unable to comply when the lenders asked for more money as collateral, prompting the banks to start selling off its holdings. That drove the price of the stock held by Archegos down further.
Banks that weren't quick to dump the shares - including Credit Suisse, Morgan Stanley, and Nomura - ended up with losses of more than $10 billion. The implosion caused widespread turmoil on Wall Street and exposed the fragility in lesser-known areas of the financial system.
Archegos has hired restructuring advisers to help it navigate its financial mess as well as potential legal claims from banks.