The Two Tiger Cubs at the Center of Friday’s $35 Billion Meltdown

It wasn’t just Bill Hwang’s Archegos Capital that got battered by a Friday market implosion. 

Another secretive Tiger Cub — Tao Li of Teng Yue Partners — was also involved, according to an investor in the fund. 

Hwang, the founder of now-defunct hedge fund Tiger Asia, ran a heavily leveraged family office and was reportedly the key figure in $35 billion in market losses Friday that sent Discovery, ViacomCBS, and GSX Techedu reeling. 

Early Friday, Goldman Sachs reportedly told clients it was selling big blocks of several stocks because a fund is “involuntarily selling to meet obligations.” The sales, which were also conducted by other firms, were also described as a “forced liquidation” to meet margin calls. 

Archegos is the fund in question, according to several news reports, but it’s unknown how much of the $35 billion in market losses was borne by Hwang. Market sources estimated he was worth between $10 billion and $15 billion before Friday and levered five to one on top of that. 

But the chaos also pummeled Li, who was formerly a managing director at Hwang’s Tiger Asia. Li now runs a hedge fund called Teng Yue, which disclosed more than $10 billion in regulatory assets under management at the end of 2020, a number that includes leverage. That was more than double the $4 billion it had the prior year. 

Teng Yue also had sizeable, but fewer, losses than Hwang, according to an investor. 

The hedge fund, which was up 40 percent through February so far this year, is “clearly down in the teens” in March, the investor said. 

He added that Teng Yue “is very volatile.”

Hwang and Li, both of whom are headquartered in New York, have largely been operating under the radar since Hwang closed Tiger Asia after settling an insider trading case with the Securities and Exchange Commission in 2012. Two years later, Hwang was banned from trading in Hong Kong for four years.

According to Bloomberg, Hwang admitted to illegally using inside information to trade Chinese bank stocks and agreed to criminal and civil settlements of more than $60 million.

Little is known about Archegos because of its family office status. And despite billions of dollars at stake, neither Archegos nor Teng Yue has filed a 13F quarterly disclosure listing the public U.S. equities they own. They get around that requirement by using swaps, which also allow them to avoid regulatory limits on leverage for stocks, market participants explain.  

Li opened Teng Yue in 2011 and is registered with the SEC. But the fund is exceedingly discreet, even by hedge fund standards. “I’ve never seen anything written from them about any individual stock. They will only speak off the record orally,” said the investor.

One stock Li has talked about that was involved in Friday’s rout is GSX, according to an individual familiar with the discussions.

GSX appears to have fallen more than any of the others that were part of Friday’s liquidation: It was down 42 percent for the day, while Discovery and Viacom were down around 27 percent each.  

For the past year, Chinese online educator GSX has been a battleground stock with several shorts knocking it down, only to see it skyrocket afterwards – even after an SEC investigation was disclosed last year following short sellers’ allegations of fraud. Last week, the SEC said it would soon start enforcing new legislation that would force Chinese companies to open up their audit books to U.S. regulators or face delisting from the exchanges. 

Muddy Waters’ Carson Block, who alleges that the company’s students are really bots, has long believed that unnamed hedge funds have been orchestrating a short squeeze in GSX. 

On Saturday, Block responded on Twitter to speculation from Bronte Capital’s John Hempton that Hwang had been behind a January short squeeze in the Chinese company.

“He wasn’t the only one. Teng Yue, owned by his former Tiger Asia analyst, Tao Li, was in GSX. So was Tiger Global (disclosed). Between the swaps and the disclosed TG position, ~75% float choked. There was no fundamental case to be long. So draw your own conclusions,” Block tweeted.

“I don’t believe they had any fundamental basis for going long,” Block told Institutional Investor. “They went long because they thought it could squeeze.”

Archegos, whose website was taken down Saturday, could not be reached. Teng Yue did not respond to a request for comment.

Chase Coleman’s Tiger Global declined to comment. The famed hedge fund disclosed a long position in GSX earlier last year and still maintained it at year end.