- Firm’s Digital Growth Strategy allow clients to own the underlying assets, giving them ability to own private keys
- The uncorrelation and diversification that cryptocurrencies offer investors will “never go away,” Leavenworth CEO says
A new firm is looking to fill what it considers to be a void for investors in the digital assets space by launching an actively managed crypto strategy that pairs long-standing asset management techniques with the growing demand for cryptocurrencies.
Leavenworth Capital, based in Oregon, has launched an actively managed digital asset offering. The company is focused on developing and managing institutional-grade separately managed accounts, SMAs, that invest in cryptocurrencies, including bitcoin. But unlike many of the passively managed vehicles that exclusively hold bitcoin, the SMA aims to beat it.
Jack Shepherd, Leavenworth Capital founder and CEO, most recently worked as a vice president for Transamerica’s mutual fund business. Prior to that, he was at Jensen Investment Management, Deutsche Bank and Thornburg Investment Management.
“I had worked for traditional investment firms in the past, and so essentially that’s really all we’re doing with Leavenworth,” Shepherd told Blockworks in an interview. “We’re not really reinventing the wheel here. We’re taking what’s been done in traditional finance and asset management for the last 50-plus years and just applying it to cryptos.”
But Shepherd said it took some time for him to see the potential of cryptocurrencies as an asset class. With more research he became “absolutely hooked,” he explained, unable to sleep as he wanted to learn more.
He and Ranjan Grover, now the Leavenworth Capital chief investment officer and portfolio manager, had discussed various investment ideas for several years. Grover has a PhD in optical sciences and brings an understanding of blockchain technology and its use cases in financial services and portfolio construction. He has worked in a range of roles at Intel since 2008, according to his LinkedIn profile, serving as a senior data scientist there since January 2020.
“With his technology background and trading expertise and ability to really generate alpha in all asset classes, but specifically in the crypto space, we just started having conversations,” Shepherd said. “We came to the conclusion that there’s really an unmet need for crypto SMAs in the marketplace, and that’s usually a pretty good time and place to start a business.”
The new company is one of the crypto industry’s earlier adopters of the Global Investment Performance Standards, GIPS, a framework for performance measurement and presentation. Its first offering, the Leavenworth Digital Growth Strategy, is actively managed, making it unique to many other crypto products on the market.
Leavenworth Capital’s four-step process shrinks the 4,000 or so possible cryptocurrencies to a focused, manageable investable universe, Shepherd said. The firm then does fundamental, bottom-up research to determine what ends up in the portfolio.
Firm leaders also pointed out that with most existing investment vehicles in the space, clients don’t actually own the underlying asset. Crypto ETFs in Canada and elsewhere, for example, are designed to allow investors access to crypto exposure without the risk of self-custody within a digital wallet. The SEC is mulling the applications of about a dozen such products in the US.
“By utilizing our investment strategy our clients actually own the underlying assets, meaning they have the option to own their own private keys,” Grover said in a statement. “In a world where there is only 21 million bitcoin with about 18.75 million in circulation, we believe that individuals should own their cryptocurrencies and not just have an investment in an ETF or a closed-end fund.”
Bitcoin’s performance compared to the S&P 500, gold, oil, and bonds, for example, was “hard to ignore,” Shepherd said, noting that its lack of correlation has made it attractive to university endowments and foundations in the last few years.
Many of the biggest registered investment advisers have a 5% or 10% allocation to alternatives like hedge funds, real estate or private equity, he added, and cryptos should also be considered within this mix.
Cathie Wood, Ark’s CEO and founder, said last November at a virtual Barron’s conference that she believes bitcoin could hit $500,000 in the long-term if institutions assign a mid-single-digital allocation to bitcoin, as they did with asset classes such as real estate and emerging markets.
Paul Tudor Jones, founder and CIO of Tudor Investment Corporation, said last month that bitcoin is a portfolio diversifier amid inflation concerns, noting that he favors a 5% allocation to the cryptocurrency.
“Is bitcoin going to return 200% a year for the upcoming 10 years?” Shepherd said. “Nobody knows, nobody has a crystal ball, but the uncorrelation and the diversification that it provides for a high-net-worth individual, or an individual or a multi-billion-dollar RIA and their client base is unbelievable, and that’ll never go away.”