Crypto Hedge Fund Launching Market-Neutral Strategy to Meet Investor Demand, Sources Say

Cryptocurrency-focused hedge fund firm Lightning Capital  is preparing to launch a market-neutral fund on the heels of strong performance in its flagship directional strategy, Blockworks has learned.

The new fund is designed to identify undervalued cryptocurrencies and capitalize on inefficiencies between exchanges and other digital asset marketplaces. The plan is to also trade futures contracts. 

The idea is to tamp down volatility, sacrificing the potential for big gains with minimal drawdowns. 

The firm plans to launch the new vehicle this quarter, according to two sources who have knowledge of the matter. The firm is currently finalizing a fundraising push to capitalize on increased institutional investor interest in market-neutral crypto strategies. 

Lightning is also considering setting up a bitcoin mining operation in the US, one source said. Crypto asset managers are increasingly looking for alternative means to generate alpha as trades get more crowded. 

Charles Hwang, Lightning’s founder and managing member, declined to comment. The firm’s flagship vehicle, Lightning Capital Partners, gained about 100% last year, following a 2020 increase of some 150%.

When the fund started trading in January 2020 with friends-and-family money, it pursued a mostly quantitative strategy. That has evolved over time, with Hwang tapping his background as an equities trader to build financial models based on fundamental analysis.

Market-neutral strategies, which place offsetting leveraged long and short bets designed to insulate returns from market moves, have long been a darling of traditional investors. The likes of multi-strategy hedge fund firms like Citadel and Millennium Management have accumulated billions of dollars of institutional capital by avoiding directional bets. 

Lightning, whose limited-partners for the most part consist of high-net-worth individuals and family offices, hopes to capture some of that institutional capital as the firm grows its asset base. The firm does not make public the value of assets under management. 

Before forming Lightning, Hwang worked as a valuation consultant and forensic accountant for Ernst & Young. He previously spent time at a number of Wall Street firms in equity trading roles.

Jason Albanese, the CEO of digital consulting firm Centric Digital, also works for Lightning — as does the trader and venture capitalist Jock Percy. 

The firm is headquartered in Stamford, Conn., but is in the process of moving to Miami. The shop employs a number of other operational and investment employees that are not public — a common move by crypto asset managers to shield their talent from competitors.

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