In This House We Prey: Managing family wealth for dynastic power

Weird headline. About how Dodd-Frank has allowed "family offices" (hedge funds that only manage the money of a single family, with much looser restrictions than other investment companies face) and these loosely regulated investment companies have the potential to do great damage to our economy.

In This House We Prey | Melinda Cooper

Hwang quickly leveraged himself to the hilt by simultaneously borrowing from multiple investment banks and purchasing large derivative stakes in public companies. When share prices fell in early 2021, each of these banks individually called in their loans, apparently unaware that Hwang had obligations to multiple other brokers. Archegos had no choice but to default on its margin calls, leaving six banks with a total of $10 billion in losses and tumbling stock prices. Credit Suisse alone reported a $5.5 billion hit—equivalent to five years of pre-tax profits in its investment banking division. One reason why Hwang’s risk-taking was invisible to both regulators and brokers was because Archegos operated as a “family office”—a vehicle wealthy families use to manage, protect, and pass on their asset holdings. As such, it was covered by special privacy protections that were reaffirmed by the Dodd-Frank Act of 2010.

With Archegos’s thunderous collapse, this once-secretive method of dynastic wealth management came crashing into public view. It has become de rigueur for the very rich—of new and old extraction—to channel their personal and family assets into a family office, thanks to the stupendous inflation in asset prices induced by the Federal Reserve’s unconventional monetary policy following the global financial crisis of 2008. As wealthy households watched the value of their assets soar into the billions, they found they could rely exclusively on their newly inflated family fortunes to stake out independent positions in the private investment market. They have since become a disruptive force on Wall Street, pursuing deals that were once reserved for private equity firms and hedge funds.

Fearful of losing their regulatory privileges in the wake of the Archegos debacle, family office associations rushed to erect a cordon sanitaire between themselves and Hwang. As congressional reformers held up Archegos as a cautionary tale of well-heeled hubris, insider lobbying groups disavowed all affinity with their prodigal brother. Archegos, they claimed, was a hedge fund in disguise; and Hwang was just one of many hedge fund managers who had converted to family office form as a matter of regulatory expediency in the wake of Dodd-Frank. Traditional family offices, it was implied, were inherently conservative investors who would never have countenanced the kind of high-risk swap deals undertaken by Hwang.While each of these claims were plausible, none of them were mutually exclusive.