MANAGERS
HOW HEDGE FUNDS ARE TAPPING INTO A W E A LT H O F C R Y PT O O P P O R T U N I T I E S While the volatile nature of cryptocurrencies – coupled with the still-unfolding shape of regulation – has kept some investors on the sidelines, outsized returns offered by digital assets continue to draw in hedge fund managers
A
long with a slew of smaller, crypto-native managers, there’s a growing list of established, brand-name firms from both sides of the Atlantic stepping into the space. Among the eye-catching roll-call of hedge fund heavyweights is Brevan Howard Asset Management, which last year expanded its focus both with the launch of BH Digital, a new division dedicated to managing cryptocurrency and digital assets, and through its Brevan Howard Master Fund, which opened to crypto assets in May 2021 also saw US hedge fund veteran and longstanding digital assets evangelist Bill Miller’s long-running flagship fund move into the market. Paul Tudor-Jones, the macrofocused founder of Tudor Investment Corp, and former Fortress Investment Group manager Michael Novogratz, who now runs cryptocurrencyfocused asset manager Galaxy Investment Partners, are also
long-standing crypto advocates advocates, along with other highprofile industry veterans including Stanley Druckenmiller, Ray Dalio, and Anthony Scaramucci.
Exposure
Last year’s third annual ‘Global Crypto Hedge Fund Report 2021’, published jointly by PwC, Elwood Asset Management and the Alternative Investment Management Association, found roughly 150-200 active crypto hedge funds, with four out of five (81 per cent) launched between 2017 and 2020, spread across a range of discretionary longonly, discretionary long/short, multistrategy and quantitative investment strategies. One in five (21 per cent) of traditional hedge fund managers also actively invest in digital assets, according to the data, with the average percentage of their total hedge fund AUM invested standing at 3 per cent.
WHAT’S YOUR
STRATEGY? PAU L F R O ST- S M I T H , FO U N D E R A N D C E O, CORINTHIAN DIGITAL ASSET MANAGEMENT
“We are thematic long/short – that’s our core portfolio. Outside that, we trade a whole range of market neutral, derivative-type opportunities that surface from time to time. We describe ourselves as ‘quantamental’ – we have a fundamental team and then we have a quantitative team. We talked to our investors and asked them whether they wanted us to be pretty safe in crypto-land, or if they were looking to us for a real performance diversifier. They all, without exception, said they wanted us to go after a minimum of 35 per cent a year. That’s what they’re looking for. My view is that there is a risk/return threshold for investing in crypto. It’s very different from just looking at what the basis is between futures and spot and trading it for three months and coming out on the right side. Given the spreads that are charged by exchanges, given the inherent costs in the market, given the custody issues, I think you have to be making 30 per cent plus to be credible. If you’re not doing that, then investors who are putting money with you may be better off in a traditional hedge fund, probably because they don’t carry some of those fundamental risks which are inherent in the crypto markets.”
H E D G E W E E K IN S IG H T R E P ORT
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