Fireside Primer: Easy Access to Actively Managed Crypto Hedge Funds Through AMCs
At this stage in the game, it is pretty easy to see that buying Bitcoin from an exchange and storing them in a digital wallet is merely one of a myriad of ways to access digital assets. And while the crypto market is still young and volatile, we see a strong indication that the digital assets industry as a whole will continue to grow. There are many pitfalls for investors to watch out for, yet there is much promise, leading curious investors to ask “how can I do it?”. A variety of actively managed crypto strategies are available. Selecting the “right” mix is something AltAlpha focuses on.
Marc D. Seidel is a member of BFI’s management team and heads up BFI’s Alternative Investment practice. He is particularly focused on the AltAlpha Digital, a fund of actively managed crypto strategies launched by BFI Consulting in fall of 2021.
Marc will be one of our featured panelists for the upcoming Fireside Conversation webinar, “AltAlpha Digital – Active and Diversified Investing in Leading Crypto Talent”, taking place on Wednesday, April 27th, 5pm Swiss/Central European time. Investing in digital assets will be discussed in great detail, and we’ll turn the spotlight on AltAlpha Digital and how it is making investments in this arena safer and more convenient.
To register for the Fireside Conversation, go to www.bficapital.com/firesideconversations.
The following is an article Marc wrote for GenTwo, in which he gives a preview of the crypto hedge fund that is making life easier for the curious digital asset investor.
When looking down into the crypto rabbit hole, it will not take long for one to notice that there is more – for that matter, much, much more – out there than just BTC.
Many areas across our society and economy are being revamped by this new technological revolution that offers a means of borderless and trustless interaction based on decentralized, code-enforced platforms. An entire new economy is growing, and growing fast, just as the requirement for new talent. An engineer recently told me that while being an engineer was the top career choice in the last decade, being a game developer will be the headliner for the next (the metaverse is calling!).
Given the fast-paced opportunities (as well as pitfalls) growing in this market, it isn’t surprising that crypto funds are also rapidly growing in numbers. In conferring with GenTwo Advisory Board Member and AltAlpha Digital crypto fund of funds co-founder, Marc P. Bernegger, he helped us to outline some of the reasons for growth and the attractiveness of crypto funds.
This still nascent industry has grown rapidly as it services the needs of investors looking for a diversified, safe, and straightforward way to participate in this transformational investment opportunity. The PwC and Elwood’s 3rd Annual Global Crypto Hedge Fund Report 2021 states that assets under management of crypto hedge funds increased to USD 3.8B in 2020 from USD 2B the year before. Most investors in these funds are high-net worth individuals (54%) or family offices (30%) with the median investment being USD 400K and the average USD 1.1M.
What makes the crypto hedge fund so attractive?
First, the strategy starts with the fund managers involved, their abilities and their experience. Many of these managers have spent decades in the traditional finance world running strategies using models and vast data sets, and thus, have a systematic approach to trading. This quantitative approach can be superior to human decision-making procedures given the, at times, irrational and volatile nature of the crypto market. The market is still dominated by traders making decisions by monitoring the price action on charts (e.g., technical chart analysis), which can have a self-fulfilling prophecy effect increasing the strength of trends, favoring quantitative strategies.
Next to traditional price signals, traders can also retrieve specific, blockchain based data known as on-chain metrics (e.g., transaction values, miner fees, etc.). This can further enhance quantitative strategy’s predictability by combining on-chain data with technical price data.
There are additional reasons that make hedge funds attractive, including their informational market advantage, their professionalized risk management, and the hedging capabilities through, for example, derivatives such as long puts that they offer, particularly during down-markets. These funds generally trade very liquid, exchange-listed crypto assets, which provide better liquidity to investors than a fundamental venture capital type investor who targets long term early-stage projects, but then often faces up to four yearlong vesting periods.
Furthermore, the crypto space is wide and rapidly evolving, making it impossible for a single person to keep track of everything in the type of detail required. Single fund managers dive deep into specific areas such as DeFi, Gaming, NFT infrastructure, etc., and build their expertise, systems, and strategies through them. This is where “fund of funds” step in, acting as aggregators from different managers and strategies in one investment vehicle. Their multi-strategy approach to diversify risk, while having a broader exposure to the market, has given them momentum in this developing market.
Now, a new investment vehicle innovation has fuelled this growth, especially in Switzerland: AMCs (Actively Managed Certificates). No longer are these investment managers only bound to launching funds, but are also using AMCs, which allows them to launch innovative, novel solutions into the market quicker, while providing their clients with numerous benefits. The benefits include, but aren’t limited to, creating easily accessible bankable solutions which can be purchased with your existing bank via an ISIN (no additional accounts, side agreements, etc.). These strategies often have minimum entry points as low as CHF 10’000 versus most other hedge funds that normally start at USD 250’000, if not more.
In summary, the crypto space is exciting and full of possibilities. But it is also risky, volatile, and demanding if you manage everything yourself. Until this industry matures, actively managed investment solutions, like AltAlpha Digital’s fund of funds using an AMC structure, provide for easy bankable access for investors to take a diversified position within this emerging technology.
“If you want to participate in this market, everything is ready, whether you are an expert or not. The standard, retail type apps and exchanges are still somewhat clumsy and at times even unreliable. However, in the institutional realm, the Swiss infrastructure, standards, and procedures are ready for use – they are operational. And the large players are taking note and moving in rapidly. For investors wanting to take part in this, it is best to call one of the Swiss hybrid banks or advisors to get started.” – Marc D. Seidel