Many of America’s newly minted billionaires come from the world of alternative asset management, so it is hardly surprising that in looking to manage their wealth, they would deploy the same cutthroat methods they had honed as hedge fund managers or private equity partners. Hwang’s history of fraud may be a red herring here, as it distracts from the more significant fact that alternative asset managers as a class are turning into dynasts before our eyes. It is not only regulatory expediency that has led the most successful private equity and hedge fund managers to set up family offices but the fact that so many of them now dispose of fortunes liable to long outlast them.
The lesson to be drawn from the Archegos drama, then, is not that the genuine family offices are to be separated from the pretenders, but that dynastic wealth holders have become a danger to us all. Archegos has been compared, with good reason, to Long Term Capital Management, the hedge fund whose collapse in 1998 posed such acute danger to the financial system it had to be bailed out under the auspices of the New York Federal Reserve to the tune of $3.6 billion. Today, family offices are estimated to hold at least $6 trillion in assets—more than the entire hedge fund industry. If one little-known family office is capable of wiping billions off the balance sheets of six investment banks, how long before the Federal Reserve and Treasury step in to prop up a single family fortune?
