In The News - HedgeWeek - “Digital gold”: As bitcoin soars to record highs, hedge funds are capitalising on 2020’s crypto boom
When bitcoin hit an all-time high of some USD20,000 earlier this month, it rounded off a remarkable year for the world’s leading cryptocurrency – and fully underlined the arrival of the once-niche asset class on a rapidly-growing number of hedge fund firms’ radars…
By Hugh Leask
One prime mover in cryptocurrency strategies has been Altana Wealth, the hedge fund firm set up by Lee Robinson, the veteran Trafalgar Asset Managers co-founder and former Tudor Corp trader.
Robinson first met cryptocurrency and tech entrepreneur Alistair Milne in 2013, and the following year Altana launched its Digital Currency Fund, with Milne at the helm as CIO - one of the first such strategies in Europe which now has one of the longest track records in the market.
The firm followed up in 2017 with the launch of the Altana Cryptocurrency Trade Finance strategy which specialises in lending USD to crypto dealers – “a niche but effective strategy to achieve consistent credit returns”, says Neil Panchen, CTO and PM for Altana Cryptocurrency Trade Finance.
Both the Altana Digital Currency and the Altana Cryptocurrency Trade Finance strategy have generated triple and double-digit returns respectively so far this year.
“There has been a growth in algorithmic strategies as hedge funds have entered the market and transferred quantitative skills across to capitalise on market inefficiencies,” Panchen says of the evolving hedge fund approach.
“Options strategies have also come into play, either as outright strategies or to provide some downside protection, as liquidity, volume and balance sheet / insurance fund backing on exchange has grown. However, the market is not mature enough yet for single strategy funds, like arbitrage and event driven, to perform continuously through the full cycle.”…
Given the asymmetric return profile offered by some crypto strategies, investors have typically looked to allocate anywhere between 0.5 per cent and 5 per cent into cryptocurrencies, according to market observers.
Appetite among allocators is on an upward trend – but Panchen acknowledges that some institutional investors “simply do not have a mandate” to invest in crypto, particularly those institutions with “long chains of decision making.”
“We are definitely seeing increased investor interest at the moment mainly due to the long-term track records of our funds – six and four years - but also due to the worsening interest rate environment,” Panchen notes, observing how bonds and equities have become “unusually highly correlated” so asset classes that are less correlated are being reconsidered.
He points to “record inflows” into Altana’s strategies over the summer from family offices and high net worth individuals, as well as a longer-term increase in institutional demand since the 2017 high from the likes of funds of funds and digital and tech companies.
“Some private wealth managers still won’t touch crypto even though their clients are asking for it to be part of their portfolio,” he notes. “But family offices that can assess higher risk return strategies and make a decision on this basis are more likely to invest.”
Still, challenges remain for the digital asset hedge fund sector, even amid the 2020’s boom and growing mainstream acceptance…
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