Talk about a rough week at the office.
Over the past week, Wall Street has been picking through the implosion of a $10B fund called Archegos Capital Management.
A number of highly leveraged bets went sideways and the fund — run by industry vet Bill Hwang — went poof virtually overnight.
Per The Wall Street Journal, Hwang is purported to have personally lost $8B in 10 days while 2 global lenders (Credit Suisse, Nomura) are also reporting 10-figure losses.
While these numbers are big…
… the longer-term effects may send ripples through a much larger pile of money: The family office industry.
Family offices are privately held companies that manage assets for the superrich ($100m+ in investable assets) with the goal of preserving wealth over generations. The source of the funds can be from generational wealth or uber-successful entrepreneurs.
Per the Financial Times (FT), the industry’s numbers are staggering:
- 7k+ family offices globally (up ~40% between 2017 and 2019)
- ~$6T in assets under management across all the offices (nearly 2x the hedge fund industry)
- $1.6B is the average family office holding
Here’s the kicker: the industry is very lightly regulated
While hedge funds, endowments, and pensions are accountable to outside money, family offices are able to stay a secretive affair.
Dan Berkovitz — a commissioner of the Commodity Futures Trading Commission (CFTC) — believes the current disclosure requirements are totally insufficient as reported by FT.
“The information required would fit on a Post-it note,” he said in a statement regarding Archegos. “And… the annual cost of the filing [is] merely $28.50.”
What will happen next?
While many family offices employ boring financial strategies to preserve wealth, Archegos — which had a peak portfolio value of $100B+ boosted by bank leverage — shows the risk.
Even though Hwang admitted to securities fraud in 2012 (and paid a $44m fine), leading investment banks were happy to have his business.
In the aftermath of the real estate crisis, the 2010 Dodd-Frank Act tightened financial regulation. Post-Archegos, the industry may see new rules for family offices, banking services, and the specific financial product used in Hwang’s trades (called total return swaps).
All of this seems totally reasonable…
Israeli-founded digital advertising firm Adcore (ADCO) began trading on the TSX Venture exchange less than a year before the COVID pandemic lockdowns began in early 2020. While that uncertainty created short term challenges in the market and with their business plan, the company has roared back with results that are thrilling both early and new investors.
Adcore was first introduced to our audience by Ryan Irvine and the team at Keystone Financial as one of their researched recommendations. CEO Omri Brill subsequently presented as part of the 2021 World Outlook Financial Conference Small Cap Investing series (CLICK HERE to watch).
The company just released it’s 4th quarter and full 2020 financials yesterday, and the revenue growth is nothing short of spectacular, up 219% for Q4 to $13.3 million and up 52% to $22.8 million for the full year. Adcore is one of those companies that has benefited from the shift to a stay-at-home economy. Their digital advertising technologies have become essential to clients around the world who now rely almost entirely on e-commerce revenue.
“We rebounded from a challenging first half of 2020 to an astonishing all-time high in revenues,” explained CEO Brill. “And we see the shift in consumer behavior and the effectiveness of digital advertising continuing in 2021.”
It also helps that Adcore stayed true to it’s aggressive strategic initiatives. In the past year the company announced new and expanded relationships with industry behemoths Shopify, Facebook and Microsoft. 2020 saw the opening of offices in Hong Kong, adding to the Tel Aviv, Melbourne and Toronto locations. A second China office was opened in Shanghai in early 2021. The company also graduated to the TSX main board and added a Frankfurt listing as well. A dual US listing is in the works for 2021. And with plenty of cash in the bank Adcore has the ability to continue it’s international expansion.
Adcore’s main challenge, as with many fast growing tech companies, is to ensure it’s bottom line performance keeps pace. EBITDA remains positive but did not move up relative to revenue. Investors are willing to be patient with such positive and bullish growth, but new all-time highs bring new and higher expectations.
According to Omri Brill, “this is a pivotal time as global businesses accelerate their digital transformation. We stand ready to help them increase their presence, brand recognition and success in the digital marketplace.”
The woes that arose from Archegos Capital Management at the end of last week bled into Monday as a slew of big banks saw their share prices decline.
Here’s how the $20 billion blowup unfolded.
U.S. media stocks ViacomCBS and Discovery experienced severe selling pressure on Friday, with each losing more than 27%.
A few Chinese internet ADRs including Baidu, Tencent and Vipshop also suffered sell-offs of a similar magnitude last week.
ADRs are American depositary receipts, essentially a certificate that represents a share of a foreign stock and is traded on American stock exchanges.
The culprit for the massive selling was a forced liquidation of positions held by the multibillion-dollar family office Archegos, CNBC reported.
Archegos, founded by former Tiger Management equity analyst Bill Hwang, had built massive positions in these stocks through swaps, a type of derivative that investors trade over the counter or among themselves without having to disclose the holdings publicly.
These swaps usually involve higher-than-usual leverage.
These large, leveraged bets came under pressure after ViacomCBS’ $3 billion stock offering through Morgan Stanley and JPMorgan earlier in the week fell apart, which triggered broad selling in the name.
Ryan King of Calibre Mining was one of the Precious Metal Investing presenters at the 2021 World Outlook Financial Conference (CLICK HERE to watch the video). He and the team at Calibre have just issued an update on their Mineral Reserve base of their Nicarauguan gold mines, now the highest it’s been in 10 years + some new discoveries. ~Ed
100% Owned Mineral Reserves and Mineral Resources highlights:
- 202% increase in Mineral Reserves to 864,000 ounces since year-end 2019 and after 2020 depletion;
- Largest Mineral Reserve since 2010 with the highest grade on record, 4.49 g/t Au;
- 296,000-ounce increase in Libertad Mineral Reserves, from zero at year-end 2019;
- 137% increase in Limon Open Pit Mineral Reserves after depletion;
- Total Indicated Mineral Resources of 1,532,000 ounces;
- Total Inferred Mineral Resources of 1,314,000 ounces;
- New discoveries at Atravesada and Panteon during 2020; and
- 60,000 metre, exploration and resource growth drilling program underway.
Resource Expansion Opportunities (Current Exploration Drilling Activities)
- Two rigs are operating at the Pavon Norte open pit, testing on-strike and down plunge extensions.
- Three rigs are operating within the Limon complex, currently drilling at Panteon, Atravesada, and Limon Open-pit extensions.
- Four rigs are operating within the Libertad complex, where numerous mapped gold veins continue to demonstrate the opportunity for new discoveries and resource expansion.
- Four rigs are operating at Eastern Borosi, advancing infill drilling at Riscos De Oro, Guapinol and the Vancouver veins. Resource expansion drilling is also testing the 10’s of km of low sulphidation veins recently prioritized by our team’s fulsome reviews.
- Exploration drilling programs on our large bulk tonnage copper and copper gold targets with earn-in partner Rio Tinto
- Exploration programs on our 100% owned Eastern Borosi Project
- Production Results
- Drilling Results
Year-end 2020 Cash position of US$53 million, the Company has no debt and is unhedged
In Canada, our preference is towards financials, energy and communication services.
No matter the metric, equity market valuations in the United States remain elevated. It does not matter if investors look at prices relative to earnings (trailing, forward or the Shiller cyclically adjusted price-to-earnings ratio), cash flows, free cash flow, EBITDA or just about any other indicator they can think of, the message remains the same. Indeed, as per our Strategizer publication, the valuations category is by far the least favourable component of our U.S. equity model.
As a result, it was no surprise to us that running a screen on the return of capital to shareholders (both buybacks and dividends, a.k.a. the “all-in” yield) for U.S. and Canadian equities produced a similar conclusion. Looking at the accompanying table, it is clear just how cheap Canadian stocks are relative to their U.S. peers: the TSX offers a more attractive 3.9-per-cent all-in yield (and a less elevated 44th percentile reading relative to its history) compared to 2.9 per cent (93rd percentile) for the S&P 500.
A response to a Freedom of Information request about Softbank’s trading activity has revealed that the Uber and Wework investor is under investigation.
On Wednesday, short seller research site PlainSite posted a letter from the Securities and Exchange Commission on Twitter revealing that the agency is investigating SoftBank, the Japanese telecommunications company and investing giant notorious for financing various unprofitable “technology” companies like WeWork, Uber, Compass, and Oyo.
Aaron Greenspan, founder of the Think Computer Foundation that runs Plainsite, filed a FOIA request in December 2020 for “any investigative materials [from January 1, 2018 to the present] pertaining to the various SoftBank companies controlled by Masayoshi Son, specifically relating to SoftBank’s trading of stocks and derivatives on those stocks.”
This request was filed in response to the revelation last fall that SoftBank was the “Nasdaq whale.” SoftBank was responsible for stoking a huge rally in tech stocks, the Financial Times reported, because around August it began buying billions of dollars worth of call options in a shift for the company, fueling a rally that pushed up the share prices of tech companies it held billions of dollars of equity in.
Thanks in large part to a rally sparked by SoftBank’s high-risk market plays, firms like Tesla and Apple were up 74 and 21 percent, respectively, in the month of August alone. Executed through a small desk of traders and chief executive Masayoshi Son himself, the trading unit―named SB Northstar―and its bets won the company some $4 billion in gains at the beginning of September, before quickly melting away into nearly $3 billion in losses by the end of the month.