This evening Tesla (NASDAQ: TSLA) skeptics have found themselves with a juicy connection to ponder all weekend. Cathie Wood went on CNBC’s Closing Bell to help calm investors in her various ETF’s which are down between ~1.8% – 9.2% for the month. The same period where FOMO traders have begun moving into ‘investments’ like Dogecoin, CUMMIES, Safemoon, and all other very speculative quick return coins.
In the interview, Cathie announces that the now almost defunct family office named Archegos Capital Management, ran by former tiger cub Bill Hwang, actually seeded ARK’s first four ETF’s. When asked about the relationship between Hwang and Wood she said “Yes, he did provide the seed for our first four ETFs.”
Later Wood goes on to say that “I have not spoken to him” but sent him a note wishing him well. This note was sent after a series of margins calls that could not be maintained by Hwang’s family office. These events forced the prime brokerages who held stock as a hedge and/or as collateral to sell their positions equating to roughly $50 billion in a select few names and putting Archegos on life support.
Archegos is now preparing for insolvency as banks seek to regain their losses after multiple prime brokerages reported an aggregate over $10 billion in losses. This includes six well-known prime brokerages who rushed to exit their long positions in relation to the total return swaps they transacted with Archegos.
A total return swap (TRS) is a derivative product that is similar to a contract for difference, where a firm takes a theoretical position in a stock and gets compensated based on the day-to-day movement of that stock. The most common way for prime brokerages to hedge the TRS they sold to firms is to buy the underlying company.
This is usually a safe product to offer, where the prime brokerages hedge the position by owning the underlying security, in exchange for a small percentage fee. However, in Hwang’s case, his holdings were extremely concentrated and he used various prime brokers to manage his positions. When Hwang defaulted on his margin calls, every broker was forced to sell out of their equity holdings to get back to neutral, but with various prime brokers holding the same position, it became a race out the door and created a fire sale.
In the case of Cathie Wood, speculation has begun on how the connection with Hwang may have led to the objectively overvalued share price Tesla finds itself in today. With many already calling out to the SEC to investigate the trade records between the two firms.
Tesla last traded at $672.08 to close the week, up $8.54 on the day.
Information for this briefing was found via Twitter, CNBC, Bloomberg, Reuters and the Financial Times. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.