A new crypto venture is on the horizon, boasting a $1 billion treasury and a mentor that Forbes in 2013 listed as “one of the 40 highest-earning hedge fund managers.”
The unnamed platform is a part of Elwood Asset Management, a London-based firm which handles the personal cryptocurrency assets of Alan Howard, the head of the hedge fund Brevan Howard.
Alan Howard’s Elwood tells @FT it’ll invest in a range of crypto hedge funds and aims to manage over $1bn of assets. And there was me thinking the crypto hedge fund world was a graveyard of two-man start-ups that all lost more than they raised: https://t.co/bPGuCDSrTt
— Alastair Marsh (@AlastairJMarsh) August 30, 2019
Elwood’s CEO Bin Ren told Financial Times that their new venture would design portfolios of crypto funds for institutional investors. He said that Elwood is aiming to mitigate hazards associated with investing in a mostly unregulated crypto market, adding that Howard is helping them with screening the market’s most qualitative crypto funds.
“Losing traditional assets in the real world is hard. In the digital world, it’s very easy to lose assets — put in the wrong address for a bitcoin transfer and it’s gone forever,” said Ren. “Mr. Howard has identified up to 50 crypto funds that probably satisfy our due diligence.”
Filtering Away Crypto Risks
Several funds lack the seriousness of established global hedge fund management firms. According to a report prepared by Elwood and PwC this year, a majority of crypto hedge funds hold assets of less than $10 million. Many of them failed during the 2018 crash, wherein the combined valuation of cryptocurrencies fell by more than 85 percent. The ones who survived the volatility are now up by almost 60 percent as of July 2019, helped by bitcoin’s 200 percent rise since December 2018.
But the impact of 2018’s depressive performance is what scares the investors. Many of them still believe that roughly 200 to 300 crypto hedge funds are highly risky because of a string of underlying issues. They include a wave of allegations involving price manipulation, inferior liquidity, illiquid assets’ holdings, and – according to PwC-Elwood report – an absence of independent directors on the boards of 75 percent of crypto funds.
“Having the portfolio managers also control the board may work for ‘friends and family’-type funds, but it is unlikely that an institutional investor will commit capital to a crypto fund which does not have proper governance,” warned Henri Arslanian, an fintech and cryptocurrencies expert at PwC.
While the business model of Elwood’s $1 billion crypto venture remains unclear, it could allow investors to decide input factors, such as their investment goals, the terms of liquidity, and the risks they could potentially undertake. In return, Elwood’s platform would design portfolios for each investor by using the group of funds shortlisted by Howard.
“I see this as a very big growth opportunity,” said Ren.