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Regulations For Family Office: Prepare With Risk Management

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Since the March 2021 collapse of Archegos Capital, a New-York-based wealth management firm, family offices have been under renewed scrutiny by the SEC and legislative bodies.  Archegos, a family office that invests primarily in the US, Chinese, and Japanese stock markets, was forced into a fire sale of securities worth about $20 billion after some of its portfolio stocks experienced a significant fall.

Archegos borrowed money from banks and invested it in the stock of prominent publicly traded companies—such as ViacomCBS and Discovery Communications—often using an instrument called “total return swaps” that concealed Archegos’s positions. When the investments lost money, the banks called in the loans, and Archegos had to sell large blocks of stock at a loss quickly.

When the proceeds of these sales couldn’t cover the losses, some banks sold their positions, causing the stocks’ prices to fall even further. Although nothing Archegos did was illegal, the firm’s collapse sent reverberations throughout the financial industry.

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