But the ordeal could do serious damage to some. And it serves as the latest reminder of how loosely regulated hedge funds and heavily engineered derivatives have the potential to send shockwaves throughout the global economic system.
The sorts of investments Archegos has been making, though, seem to be more in line with a hedge fund-style strategy. The primary source of the fund’s trouble is believed to be a variety of swap in which Archegos didn’t actually own the shares of the companies in which it was investing. Instead, the brokers own the shares. The swaps amounted to a risky, leveraged bet that allowed Archegos to put up a small amount of money up front in exchange for impressive profits—if all went smoothly.
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