Archegos shows need to monitor family offices: Regulator

For a top U.S. derivatives regulator, the recent implosion of Archegos Capital Management sends a clear message: Washington needs to keep much better tabs on so-called family offices like the one that Bill Hwang was running.

Dan Berkovitz, a Democratic commissioner on the Commodity Futures Trading Commission, blasted his own agency for taking too light a touch with the investment funds. Since 2019, the CFTC has been pulling back on its oversight of the vehicles, which don’t take outside investor money but can rival hedge funds or commodity-pool operators in terms of holdings, he said in a statement Thursday.

“The collapse of Archegos Capital Management and the billions of dollars in losses to investors and other market participants is a vivid demonstration of the havoc that errant large investment vehicles called ‘family offices’ can wreak on our financial markets,” Berkovitz said. “A ‘family office’ has nothing to do with ordinary families. Rather, it is an investment vehicle used by centimillionaires and billionaires to grow their wealth, reduce their taxes and plan their estates.”

Family offices have boomed in recent years, driven by rapidly expanding fortunes from technology, finance, energy and real estate. There are more than 10,000 single-family offices globally, at least half of which were started within the past two decades, according to EY.

Rules at the CFTC and the Securities and Exchange Commission, which is investigating trades by Hwang’s fund that triggered a rout in some stocks last week, exclude family offices from key registration, filing and disclosure requirements. The funds also got carve-outs in the 2010 Dodd-Frank Act, which has been the bedrock of much of U.S. financial regulation since the 2008 financial crisis.

[More: Wall Street banks summoned by regulators over Hwang’s blowup]