Some of the big banks that propelled Bill Hwang’s Archegos Capital Management by orchestrating his total return swaps have been selling down the shares they ended up owning in Gaotu Techedu — formerly known as GSX — that had soared as a result of Hwang’s swaps.
But not Goldman Sachs. While Goldman appears to have steered clear of the Archegos rout, it may have gotten stuck in the more serious China crackdown that has sent the stock down to $3 per share.
The savvy investment bank was widely reported to be the first bank to unload the stocks it beneficially owned for Hwang as a result of the swap arrangements that allow funds like Archegos to avoid disclosure of their positions.
But Goldman, possibly on behalf of other swaps clients, jumped back in during the second quarter. This was before Chinese regulators said in late July that they would ban education firms from making profits, raising capital, or going public. The pronouncements have pounded the shares of Gaotu.
Even so, Goldman appears to have kept buying. (Goldman did not respond to a request for comment.)
As of August 10, Goldman was the largest owner of the shares of the troubled education company. At that time, Goldman reported owning 19.8 million shares, for a 13.7 percent stake, based on shares purchased as of July 30. That was several days after the China announcement was made.
That stake is almost as large as the 20 million share-position Goldman held at the end of 2020 — before things began going south for the education company.
Gaotu shares have fallen from a peak of nearly $150 to about $3 on Thursday. (Short sellers have long claimed Gaotu is a fraud whose lofty price was propelled by a short squeeze orchestrated by Hwang and others. The company denies being a fraud.)
Goldman began to rebuild its stake in Gaotu during the second quarter — before China’s crackdown was announced. By the end of the quarter, Goldman already owned 16.7 million shares, a 355 percent increase for the quarter, according to a Nasdaq report on 13F regulatory filings.
It’s quite an about face for Goldman, which had dumped most of its holdings in GSX — before it changed its name to Gaotu — during the first quarter. It sold 82 percent of its GSX position, or 17 million shares, during that time.
The big banks were the top eight shareholders of GSX at the end of 2020; they remain six of the top eight shareholders of Gaotu.
That said, many have been selling down their stakes.
The biggest seller was UBS, which sold 97 percent of its stake during the second quarter, ending up with 203,589 shares, according to the latest 13F filing.
Credit Suisse, which took a $5 billion bath as a result of the trades it made on behalf of client Archegos, managed to sell off 61 percent of its stake in Gaotu before the July crackdown further pummeled the stock.
But at the end of June, Credit Suisse still owned 4.25 million shares, according to its latest 13F filing. That made it the seventh largest holder.
Others who sold before the July rout include Morgan Stanley, which sold almost 12 percent of its stake and held 6 million shares as of June 30, according to its 13F. That made it the third largest owner of the stock.
Citigroup sold about 15 percent of its stake, owning 4.1 million shares, to rank eighth, according to the filing.
In addition to Goldman, both Bank of America and JP Morgan added to their positions in Gaotu. Bank of America increased its stake by almost 30 percent to 8.4 million shares, making it the second biggest shareholder.
JP Morgan, meanwhile, upped its holding by almost 45 percent, to 6 million shares, making it the fourth biggest owner.