Michael Bodley

Last year was an atypically tough one for crypto hedge fund managers — not to mention their limited partners.



Scores of trading teams that had been institutional investor darlings flipped months, or even years, of <a href="https://blockworks.co/news/crypto-trading-blowups-2022">profits into the red in a matter of days</a> or even hours. Redemptions reigned. And regulators in the US and elsewhere cracked down on industry buy- and sell-side practices they deemed improper at best, illegal at worst.



All of which added up to the worst 12 months for portfolio managers in recent memory, if not ever. Cryptoassets have booked steeper drawdowns in past years, and volumes have been further suppressed.&nbsp;



But Wall Street wasn’t watching then.&nbsp;



There’s been a more recent “emergence of hundreds of new funds” fueling a “migration of talent from traditional finance into digital assets,” according to a recent report from Forteus Research, the asset management arm of sector asset manager Numeus.



There’s no shortage of headwinds sector managers are up against this quarter and beyond, according to the report, including a lack of allocator awareness and proper prime brokerage solutions. FTX’s collapse has “undoubtedly undermined trust in crypto service providers,” it said.&nbsp;



Digital assets severely lacked Wall Street’s recognition, and dollars, during previous bear markets. That’s still a work in progress, but Forteus found that recognition is improving. Even if due diligence specific to digital assets <a href="https://blockworks.co/news/inside-crypto-lp-big-leagues">is still a work in progress</a> for pensions and endowments.&nbsp;



What happens next is of keen interest to everyone from traditional financiers parsing macro trends to digital natives <a href="https://blockworks.co/news/bad-for-crypto-good-for-traders">digging for dislocations in the pursuit of alpha</a> buried or baked into blockchains since the industry’s seismic fourth quarter shift.



The report took recent technological advancements in crypto infrastructure as one indicator of the sector’s progress. And partnerships that link the industry and Wall Street may be one more.



The study cited Coinbase’s 2022 crypto trading partnership with a Blackrock platform open to institutional investors as a “good example” of “traditional and crypto firms … working together.”&nbsp;



Crypto portfolio managers have largely trounced their traditional counterparts in terms of absolute returns for at least 36 months, according to Forteus.&nbsp;



The firm, citing HFRI <a href="https://www.hfr.com/indices">data</a>, found that Wall Street strategies have “witnessed a progressive erosion of returns and alpha capture over the past two decades, generating close to 0% of alpha when compared to the S&amp;P 500 for most of the past 10 years.”&nbsp;



<h2>Barriers to crypto adoption</h2>



A major obstacle to the widespread institutional adoption of crypto has been the lack of institutional grade infrastructure. However recent developments, including the growth of service providers and the emergence of more specialist firms, have supported greater adoption.



There are now more than 400 crypto trading options on the market, per the report.



“Trading opportunities in the crypto space are constantly evolving and the fragmented nature of how digital assets trade leads to a number of price dislocations,” it said.&nbsp;



Considering that inefficiencies are persisting, crypto traders can book “profit from spread opportunities with limited basis risk and leverage,” the report said.&nbsp;



It found that about 65% of all digital assets trading volumes are traded via derivatives these days, with a focus on futures and perpetual swaps.&nbsp;



That places arbitrage strategies, according to Forteus, in high demand — one of several investment approaches the firm cited as maintaining momentum on returns, as well as investor interest.



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Crypto Hedge Funds Outperform Wall St: Report

Nico Cordeiro works for a crypto hedge fund firm now.&nbsp;



More specifically, he heads up Strix Leviathan’s trading strategies as the firm’s chief investment officer. Before that, he co-founded Makara, an SEC-registered so-called robo-advisor that went on to be acquired by Betterment. And prior to that, he worked for PitchBook.&nbsp;



But before the switch to civilian life, Cordeiro spent more than half a decade in the US Army.



The Strix Leviathan trading head served in Iraq and Afghanistan from 2008 to 2015, a stretch that Cordeiro said felt both long and short at the same time. He was stationed in some of the region’s most difficult and dangerous US outposts, including Afghanistan’s Arghandab River Valley and Baqubah, Iraq.&nbsp;



Over those seven or so years, the infantry platoon sergeant came under heavy enemy fire on many occasions. His fellow soldiers died around him. And he narrowly escaped an incoming RPG that landed “like two feet above my head.”



He still feels “extremely lucky,” considering that on the latter occasion he “took enough shrapnel” to where he was “pretty damn bloody,” but not literally “cut in half.”&nbsp;


<div class="wp-block-image is-style-default">
<figure class="aligncenter size-full"><img decoding="async" loading="lazy" width="600" height="388" src="https://blockworks-co.imgix.net/wp-content/uploads/2023/02/IMG-4196.jpg" alt="" class="wp-image-47712" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2023/02/IMG-4196.jpg?w=600 600w, https://blockworks-co.imgix.net/wp-content/uploads/2023/02/IMG-4196.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2023/02/IMG-4196.jpg?w=397 397w, https://blockworks-co.imgix.net/wp-content/uploads/2023/02/IMG-4196.jpg?w=404 404w, https://blockworks-co.imgix.net/wp-content/uploads/2023/02/IMG-4196.jpg?w=339 339w, https://blockworks-co.imgix.net/wp-content/uploads/2023/02/IMG-4196.jpg?w=80 80w" sizes="(max-width: 600px) 100vw, 600px" /><figcaption class="wp-element-caption">Photo: Nico Cordeiro</figcaption></figure></div>


Along the way, Cordeiro discovered Bitcoin, hearing about this “new digital currency that nobody owns” that’s “kind of decentralized.” There was a moment in Iraq — about eight years into the US invasion and ensuing occupation — where the potential of <a href="https://blockworks.co/tag/bitcoin">Bitcoin</a> “kind of clicked in my head standing there in Iraq, where we had just watched an entire nation’s infrastructure destroyed.”&nbsp;



“It got me thinking,” Cordeiro told Blockworks in a recent interview. “If you&#8217;re a businessman, or you own assets — or even if you just have a large bank account of Iraqi currency when that was kicked off, your options for maintaining that wealth [are few and far between].&nbsp;



You buy physical gold quickly, and you chuck it out across the desert or across borders, which has its own inherent risks to it. Or you leave, flee the country and start completely over from scratch in a new country. Or the third option, you just stay and fight or deal with all the mayhem that&#8217;s going on. The use case just clicked,&nbsp; being able to cross the border with however much money in your head, essentially. That was pretty powerful.”



Cordeiro was 19 or so at the time and stumbled upon a news article about bitcoin (<a href="https://blockworks.co/price/btc">BTC</a>) that filtered through Iraq’s rocky communications infrastructure. This was when cell phones were still a novelty, when dial-up internet was still a thing, when precious few had even heard the word “Bitcoin.”



And when even fewer knew anything about what it actually meant. Let alone what it could become. Here’s how Cordeiro fell down the Bitcoin, then crypto, rabbithole, and how he wound up at a digital-assets focused hedge fund firm.



It’s not a likely story.



Blockworks: You were a teenager in Iraq when you heard about something called “Bitcoin.” What went through your mind?&nbsp;



Cordeiro:&nbsp; I was really young back then. When I got back from Iraq, I didn&#8217;t really pay any attention to it. Anything to do with crypto didn’t really pop back into my thought process until the end of the 2013 bull market.



There&#8217;s a ton of news stories that can came out around then, terrible news stories — like people committing suicide because they lost massive amounts of wealth that they had built up, and there was just so much that I got a little bit more into it then.



I didn&#8217;t do too much with it, though, other than following the news cycle and trying to dig in a little bit deeper… And then, in 2016, I dove back in. I got introduced to the theory behind crypto and this broader ecosystem that was being built and started putting personal capital to work in 2016.&nbsp;



Blockworks: What did you learn about yourself and your ability to manage stress while serving?



Cordeiro: I learned that I do well in fast-paced, high stress-situations.



I don&#8217;t know how to say this without sounding the way it sounds, but it didn’t really scar me.



There are bits of it that were absolutely miserable and terrible. I lost friends and soldiers that I was responsible for, which is a lifelong thing that you have to deal with.



But there was a lot of cool shit, if I may say that. I know, it sounds terrible to say to a civilian.



But it&#8217;s hard to explain; I don’t know. I just felt like I thrived in that environment. And that was actually kind of how I ended up in hedge funds, private equity and traditional finance.



Blockworks: What was your thought process behind where you wound up?



Cordeiro: So, I had been wounded when I was in Afghanistan, and my wife was pregnant, and I started my process of getting out.



At the time, I was like, ‘Oh, I’m gonna be a lifer. I’ll go to SFAS [Special Forces Assessment and Selection] and do special forces training with our students for 20 years.’



When I was wounded, someone called her. I still have no idea who. They said ‘Your husband’s been wounded in combat; we don’t know anything else.’



She didn&#8217;t hear from me for another week or two, because we were under a blackout … When someone was killed, they do a blackout [on military communications home]. They don’t want news getting back to the family before the military notifies the family officially.



Unfortunately for Afghanistan, we were pretty much always in blackout — and had pretty on-and-off internet exposure.



My wife just spent that whole week visualizing [what could have happened]. Obviously it wasn’t bad (Cordeiro was back in action a couple of days after sustaining a shrapnel head wound.)



But that really [amped up] my thought process of how to get out.&nbsp;



Dude, I basically said, ‘All right, I&#8217;m tired of making peanuts and risking my life. So, where can you make a lot of money, but also need to be good under stress and make fast paced decisions?’



That basically led me to the hedge fund world. So, I started down that path.



Blockworks: And that path eventually led you to crypto?



Cordeiro: I wound up spending another three years in the military after Afghanistan … After I got out, I finished my bachelor’s in about six to nine months, and then I rolled into my master’s of science in finance.



At that time, I interned at a private equity firm. So that was my first intro into an actual finance job. The guy who ran it was an old Navy guy, so that helped.



And then I went to Pitchbook, which was a subsidiary of Morningstar.&nbsp; And they were, at the time, just launching their research product, which was equity-style research — but focused on private markets, because they had all the private market data.



I did that for about a year before I met Jesse [Proudman] and Sadie [Raney], who were my [initial] partners at Strix, and I just hit it off with both of them and saw the opportunity.



I&#8217;ve just been doing that for the last almost five years to the day now.



Blockworks: Is that wild to you?



Cordeiro: Yeah, nobody gets it.



We&#8217;ve reached the point now where our track record is long enough that LPS don&#8217;t even ask, but for the first three years, it was always, like, ‘Why would I give you money?’



We had like zero capital markets experience. You know the finance world.&nbsp;



It’s very pedigree-driven. And — in my experience — it&#8217;s not even performance-driven. It&#8217;s more like, ‘Do you check the right boxes and have the right relationships?’



It’s been a wild ride. The amount I’ve learned over the last five years is just astronomical.&nbsp;



Blockworks: You mentioned you built Strix’s original trading system from the ground up through today and that financial modeling is one of your favorite parts of the job. Why is that?



Cordeiro: Over the last five years, I just fell in love with stats — information theory, probability theory.&nbsp;



It&#8217;s just an interesting approach to markets where everything you&#8217;re doing is run through hypotheses tests a lot. A lot of people — even on the professional side — believe things [they shouldn’t].&nbsp;



If you just take a few hours or a day or two to dive deep on [complex digital asset topics], you realize that something [you’re looking into] may not even exist. Or that&#8217;s not really the case. Or it&#8217;s more complex than that. That&#8217;s a big chunk of what I find fascinating. 



We have two funds now, and I am a co-PM [portfolio manager]. So, a lot of time is spent, working with the team through the current problem set, managing the risk for their portfolios.&nbsp;



That’s been a ton of my time over the last year … as you may imagine! … It&#8217;s more lately really been just a ton of LP [limited partner] calls taking up the bulk of my time.&nbsp;



Blockworks: What’s the LP sentiment like on those calls now? Compared to the fourth quarter or so.&nbsp;



Cordeiro: It&#8217;s better after January. You know people; It&#8217;s hard for people to ignore a 35% move.&nbsp;



Everybody&#8217;s asking themselves, ‘Oh, is the next crazy hype cycle here?’



Nobody wants to miss it this time around. So, it&#8217;s a little bit better — but FTX really was the final



nail in the coffin in terms of … A lot of these [institutional] allocator discussions are like 18-month conversations and getting to know each other.&nbsp; We felt like we were a few months away from those, and then FTX happened, and it seemed like unanimous pullback from allocators.



Now, it’s more like, ‘Oh, you know, we’ll circle back in six to 12 months when we’ve reprioritized.



Blockworks: You’re a crypto quant shop — when top LPs are cracking down on crypto due diligence. How do you handle that?&nbsp;



Cordeiro: Yeah, yeah, sure — think about the venture side. That’s much easier, from the allocator perspective, [to invest in], because they already have a [traditional venture] bucket within their broader portfolio.



It&#8217;s easy for them just to say, ‘OK, some of this is going to be dedicated to crypto VCs.’ They get that.



But a systematic hedge fund is an entirely different bucket for allocators. And a lot of allocators don’t even back traditional CTAs [commodity trading advisors] or systems. There&#8217;s a lot of allocators that just don&#8217;t get systems, so they don&#8217;t invest in them — which further shrinks down our funnel and universe of potential LPs.



But we are in a unique spot, where we’re systematic, and all anyone on the institutional side [has to do] is get approval from their investment committee like venture slices. That’s easy for them.&nbsp;



Blockworks: What about your market-neutral yield fund? Market-neutral fundraising is not a new narrative in crypto, right? It’s been done to varying degrees of success. In terms of success, what’s the appetite for that particular strategy for you all right now? How are you positioning?



Cordeiro: That’s right.&nbsp;



The appetite there is better than on the systematic side, because there’s — although this has changed a little bit over the last year — there&#8217;s long been this bifurcation amongst allocators. It&#8217;s either they don&#8217;t believe in the space at all, but they see the juicy market neutral yields, right? Like 20 to 30% for a TradFi allocator is huge, right?



Blockworks: Right — especially if the risk controls are there.



Cordeiro: Exactly. In crypto, it’s always like, ‘I don&#8217;t want 23%. I&#8217;m here for the moon!’&nbsp;



So, there’s those allocators and then there&#8217;s the true believers who are like, ‘Bitcoin’s going to a million dollars, and the whole asset class is going to be worth $5 to $10 trillion. So, I’m gonna’ take my very long beta bets through venture exposure.’



That’s why we pursue our strategy: There’s two reasons. It’s one, we keep getting questions about market-neutral in our LP conversations.



We saw this dichotomy between LPs and what is just an extremely technical team. We&#8217;ve always built out our own tools from day one. We don&#8217;t use anybody else’s software, and we already had a risk system built around blockchain&nbsp; — and data for the systematic side.&nbsp;



It hasn&#8217;t been easy, but it was an easier step for us to just build that out into — OK, we’re now monitoring risks from various smart contracts, and pulling data out of these things that we&#8217;re trading in. Which is where we see our edge, because we&#8217;re so technical.



Yield is yield, right? Anybody can go for yields and deploy capital to a liquidity pool. It&#8217;s not the most difficult thing in the world, from an institutional perspective. In the long run, your edge is going to come from your risk management.



How many of these blow ups do you avoid, right? Like the typical market-neutral, where you have wins every month — until one month you&#8217;re down like 50% because of some tail risk?



What we view as our edge and our interest here is that we think we have the technical capability to avoid a lot of that blow up risk, which, in the long run, will give us outsized returns.



____________________________________________________________________________



Cordeiro may have been lucky, and he may have been smart, while serving his country.



The Strix chief investment officer has held onto an athletic build from his Army days and still finds himself lapsing into military jargon from time to time. He apologizes for it and moves on.



It’s no stretch to say that in his day job Cordeiro relies on skills he honed in the heat of battle, where he now flits between a mesh of monitors, looking for market indicators that might spell yet another volatile bump.



Keeping an eye on those indicators — understanding what delta and beta and sigma are, knowing how to control buckets of risk beyond leverage&nbsp; — is <a href="https://blockworks.co/news/bad-for-crypto-good-for-traders">key to a trader holding their own</a>.&nbsp;



And, of course, key to generating alpha.&nbsp;



Technology has come a long way since Cordeiro’s first Middle Eastern tour of duty, when Razr flip phones were all the rage back home and a figment of soldiers’ imagination in Iraq.&nbsp;



“Back then, I was a 19-year-old dude with no girlfriend and no reason to call back home — other than checking in with the parents every couple of months,” he said. “In Afghanistan, it was the same thing. Depending on where we were at, we’d have a few landlines.”



What was a blockchain?&nbsp;



Cordeiro now knows. His firm has had a pretty good run, outlasting competitor after competitor that unwound in the fourth quarter, if not before.&nbsp;



A source familiar with the matter said Strix is looking to raise another $50 to $100 million by year end in the firm’s systematic fund — as well as getting assets under management for its market-neutral yield fund to between $30 and $40 million by Dec. 31. The firm declined to comment on specifics of its fundraising efforts.&nbsp;



It’s not going to be easy and Cordeiro knows it.



But he’s been in more stressful situations.

A Teenager Enlisted for US’ Iraq Invasion: Now He’s a Crypto CIO

Most everyone in institutional crypto trading these days has a simple mandate: Position appropriately for an extended bear market — and fine tune capital-raising efforts accordingly.&nbsp;



For <a href="https://blockworks.co/news/two-prime-teams-up-with-bain-capital-backed-venture-fund" target="_blank" rel="noreferrer noopener">Two Prime</a>, the sentiment has triggered a shift in how the digital assets-focused firm sells itself to prospective clients. And it’s even led to the notion that the hedge fund firm might no longer be much of a hedge fund firm at all.



Performance fees are out; liquidity and customized portfolios are in. The natural next step, the firm told Blockworks, is to increasingly concentrate on separately managed accounts and de-emphasize the operation’s commingled funds, at least when it comes to business development.



Two Prime — which has about $200 million in assets under management and has historically counted a number of sizable bitcoin mining operators as clients — now considers itself more of an asset manager than anything else.&nbsp;



Adam Richard, the firm’s Miami-based head of capital formation, told Blockworks that such internal deliberations spurred a bit of an about-face when it comes to the marketing materials Richard shops to big-money potential investors. 


<div class="wp-block-image">
<figure class="alignright size-medium"><img decoding="async" loading="lazy" width="300" height="283" src="https://blockworks-co.imgix.net/wp-content/uploads/2022/12/Adam-Richard-300x283.jpeg" alt="" class="wp-image-41497" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2022/12/Adam-Richard-300x283.jpeg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2022/12/Adam-Richard-300x283.jpeg?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2022/12/Adam-Richard-300x283.jpeg?w=273 273w, https://blockworks-co.imgix.net/wp-content/uploads/2022/12/Adam-Richard-300x283.jpeg?w=277 277w, https://blockworks-co.imgix.net/wp-content/uploads/2022/12/Adam-Richard-300x283.jpeg?w=232 232w, https://blockworks-co.imgix.net/wp-content/uploads/2022/12/Adam-Richard-300x283.jpeg?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2022/12/Adam-Richard-300x283.jpeg?w=50 50w, https://blockworks-co.imgix.net/wp-content/uploads/2022/12/Adam-Richard-300x283.jpeg?w=1000 1000w" sizes="(max-width: 300px) 100vw, 300px" /><figcaption>Adam Richard | Source: Two Prime</figcaption></figure></div>


The effort, which has intensified in the wake of <a href="https://blockworks.co/news/5-highlights-ftx-bankruptcy" target="_blank" rel="noreferrer noopener">FTX’s bankruptcy</a>, has resulted in literature that places security and tailor-made, “bespoke” strategies front and center. There’s also now a heavy emphasis on downside protection, of course.



“We took a hard look at ourselves and said, ‘Let’s focus less and less on the hedge fund and more on SMAs and hedging and almost delta-neutral strategies,” Richard said. “What we’re really doing here is straight asset management.”&nbsp;



Added Richard: “If we’re not a crypto hedge fund, what are we?”



<h3>Two Prime clients want security and downside protection</h3>



The shift appears to be paying off, with Richard saying he’s been fielding a growing number of calls in recent weeks from big-money players interested in both hedging and levered beta products.



Two Prime imposes a minimum of $10 million per separate account, making the investment out of reach for most high-net worth individuals. Separately managed accounts are one-off vehicles with unique strategy mixes crafted for each investor. They are inherently liquid and do not impose restrictions on subscriptions or redemptions in the same style as hedge funds.



Richards has been speaking lately with a number of unidentified family offices and bitcoin mining rig operators, as well as larger players still, including the likes of pensions and endowments.&nbsp;



As a downside protection specialist, Two Prime sees a silver lining in the ongoing market-wide debacle — one which shows few signs of <a href="https://blockworks.co/news/what-a-recession-means-for-crypto" target="_blank" rel="noreferrer noopener">abating soon</a>. Its investment team offers strategies including crypto yield plays, customized hedges, levered beta and staking — as well as a number of delta-driven quantitative approaches. 



In the case of miners, consider what happens if bitcoin takes another plunge, down to $10,000 or $12,000. If it costs a miner about $14,000 to acquire one bitcoin, “you’re way in the red, and that’s going to be an issue,” Richard said. Two Prime’s hedging plays are designed to act as a buffer in such a case.&nbsp;



“It’s quite refreshing, too, because now — suddenly — all these miners who have been telling me, ‘We don’t have a lot of bitcoin to be putting in a yield strategy’ — they&#8217;ve all come around to this and are like, ‘I think we want to hedge.’”



Added Richard: “So, why not get ahead of it now?”



Yield strategies have been Two Prime’s bread and butter. They make up about 40% of its overall assets under management. An increasingly attractive combination: combining a yield-bearing product with a tail risk option to protect against another market dive.&nbsp;



Two Prime, run by Alex Blum, is headquartered in Denver. Its staffers are based throughout the US.&nbsp;



The yield products, which center around digital asset derivatives that target long and short volatility premiums, are available in formats denominated in bitcoin and ether — as well as dollars or stablecoin cash equivalents, such as USDC. Dollar-denominated products are typically favored by TradFi institutions, while more crypto-native traders often prefer not having to bring cash into the equation.



The <a href="https://blockworks.co/news/qa-how-two-prime-has-outperformed-bitcoin" target="_blank" rel="noreferrer noopener">firm’s returns</a> have been solid. Its low-yield derivatives strategy has gained 9.2% from inception in March 2021 through the end of November; medium yield has increased 14.5%; and high yield has booked a 20.2% gain over the same period.



Another of Richard’s selling points: Separate account funds are not commingled or loaned out — which played a key role in FTX’s implosion — and clients retain custody of their underlying assets.&nbsp;



“That’s what clients want today: security,” he said.



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Two Prime Shakes Up Strategy: ‘If We’re Not a Crypto Hedge Fund, What Are We?’

Ben Strack

Man Group is reportedly preparing to launch a crypto-focused hedge fund as the segment deals with the aftermath of the collapse of FTX and the ripple effects that continue to play out.&nbsp;



The London-based company has been developing the strategy in recent months, <a href="https://www.bloomberg.com/news/articles/2022-11-18/man-group-readies-crypto-hedge-fund-despite-ftx-chaos" target="_blank" rel="noreferrer noopener">Bloomberg reported</a>, citing people familiar with the matter.&nbsp;



Set to be led by portfolio manager <a href="https://www.man.com/andre-rzym" target="_blank" rel="noreferrer noopener">Andre Rzym</a>, the sources said, Man Group trading unit <a href="https://www.man.com/ahl" target="_blank" rel="noreferrer noopener">AHL</a> could look to launch the fund by the end of the year. Before joining Man AHL in 2005, Rzym worked at JPMorgan, where he traded emerging-market interest rate and credit default swaps.



A Man Group spokesperson declined to comment.



Man Group, which offers long-only, alternative and private markets products, managed $138.4 billion in assets across its investment managers, as of Sept. 30. The company is publicly traded on the London Stock Exchange. Its stock price, which is down 6.2% on the year, was up nearly 2% Friday.&nbsp;



The company’s reported plan comes to light after crypto exchange FTX <a href="https://blockworks.co/news/ftx-ceo-bankman-fried-resigns-bankruptcy-proceedings-begin" target="_blank" rel="noreferrer noopener">initiated bankruptcy proceedings</a> last week. Lawyers representing FTX and affiliates said in a bankruptcy <a href="https://pacer-documents.s3.amazonaws.com/33/188450/042120644082.pdf" target="_blank" rel="noreferrer noopener">motion</a> on Monday that as many as <a href="https://blockworks.co/news/ftx-doom-draws-dozens-of-federal-state-international-agencies" target="_blank" rel="noreferrer noopener">one million creditors could be named in the suit</a>.



Contagion is still taking shape. Crypto yield platform <a href="https://blockworks.co/news/blockfi-eyes-bankruptcy-as-ftx-fallout-continues-report" target="_blank" rel="noreferrer noopener">BlockFi is reportedly in danger of going bankrupt</a>, and the lending division of Genesis has halted <a href="https://blockworks.co/news/genesis-halts-lending" target="_blank" rel="noreferrer noopener">customer redemptions and new loan originations</a> — both developments just two of many ripples from FTX’s splash.



Between 25% and 40% of cryptocurrency-focused hedge funds had some level of direct exposure to FTX, or its native token, FTT, Crypto Fund Research said Monday.&nbsp;



The hedge funds’ exposure to the exchange has been on average between 7% and 12% of assets under management, according to the data provider.“



When the smoke clears, we expect the losses from crypto hedge funds and crypto venture funds directly exposed to the FTX collapse to have associated losses of well over $1 billion and possibly as much as $5 billion,” Crypto Fund Research CEO Josh Gnaizda told Blockworks.



<hr class="wp-block-separator">
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$138B Fund Manager Ready To Jump Into Crypto Carnage: Report

Between 25% and 40% of cryptocurrency-focused hedge funds had some level of direct exposure to FTX or the exchange’s native token, FTT, according to a new research note.



Crypto Fund Research CEO Josh Gnaizda said in an email sent to institutional investors that the hedge funds’ exposure to the beleaguered exchange — which <a href="https://cms.blockworks.co/news/ftx-ceo-bankman-fried-resigns-bankruptcy-proceedings-begin/" target="_blank" rel="noreferrer noopener">initiated bankruptcy proceedings</a> last week — has been on average between 7% and 12% of assets under management.



“When the smoke clears, we expect the losses from crypto hedge funds and crypto venture funds directly exposed to the FTX collapse to have associated losses of well over $1 billion and possibly as much as $5 billion,” Gnaizda told Blockworks.



Industry participants told Blockworks the toll on asset managers appears to be mounting, still.



“The number of funds getting absolutely [wrecked] by this is just starting to come to light,” one crypto hedge fund portfolio manager said. The source was granted anonymity because they were not authorized to speak to the media.&nbsp;



Binance, which moved last week to potentially <a href="https://cms.blockworks.co/news/1-binance-ftx-deal-is-off-unless-ftx-us-is-part-of-the-package-source/" target="_blank" rel="noreferrer noopener">acquire its rival for $1</a> amid FTX’s “liquidity crunch,” <a href="https://cms.blockworks.co/news/did-cz-really-have-any-intention-of-buying-ftx/" target="_blank" rel="noreferrer noopener">backed out</a> of the deal, citing “news reports regarding mishandled customer funds and alleged US agency investigations.”  



<a href="https://www.reuters.com/markets/currencies/exclusive-least-1-billion-client-funds-missing-failed-crypto-firm-ftx-sources-2022-11-12/" target="_blank" rel="noreferrer noopener">Reuters reported Sunday</a> that at least $1 billion of customer funds were missing after FTX then-CEO Sam Bankman-Fried transferred $10 billion of FTX user funds to Alameda Research, a digital assets trading firm Bankman-Fried founded.



More than 100 crypto funds typically report monthly performance to Crypto Fund Research. The data provider has received dozens of updates from affected funds in the last several days, according to the email.&nbsp;



Paradigm and Sequoia Capital have exposure to FTX of $278 million and $213 million, respectively, the firms have said in recent days. <a href="https://twitter.com/GenesisTrading/status/1590836594382032896" target="_blank" rel="noreferrer noopener">Genesis said in a tweet</a> its exposure to the exchange amounted to $175 million.



Galaxy Digital CEO Michael Novogratz <a href="https://cms.blockworks.co/news/galaxy-digital-ceo-michael-novogratz-angry-about-ftx/" target="_blank" rel="noreferrer noopener">said during an earnings call</a> last week that his firm had roughly $77 million of cash and digital assets with FTX, adding that more than half of that was in the withdrawal process. CoinShares said on Thursday that its total exposure to FTX amounts to roughly $30.3 million. 



More recently, Ikigai founder Travis Kling said his cryptoasset manager <a href="https://cms.blockworks.co/news/ikigai-fund-caught-up-in-ftx-contagion/" target="_blank" rel="noreferrer noopener">had a large majority of its assets on FTX</a>. <a href="https://www.bloomberg.com/news/articles/2022-11-13/crypto-fund-galois-known-for-big-luna-shorts-confirms-40-million-ftx-exposure" target="_blank" rel="noreferrer noopener">Bloomberg reported</a> Sunday that crypto hedge fund <a href="https://www.bloomberg.com/quote/1738220D:US" target="_blank" rel="noreferrer noopener">Galois Capital</a> — the investment manager that promoted an <a href="https://cms.blockworks.co/?s=Galois+Capital" target="_blank" rel="noreferrer noopener">Ethereum proof-of-work (PoW) fork</a> in August — had up to $45 million of exposure to the exchange’s meltdown.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">For the record, yes we did have significant funds stuck on FTX. No, we did not use any Bahamian method to move funds out.&mdash; Galois Capital (@Galois_Capital) <a href="https://twitter.com/Galois_Capital/status/1591204008672497664?ref_src=twsrc%5Etfw">November 11, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Crypto Fund Research also estimated that Pantera Capital has about $100 million in exposure to FTX. A spokesperson for the firm did not immediately return a request for comment.&nbsp;



“The fallout will extend even to funds not directly exposed, due to spillover effects in Solana and the cryptocurrency markets more generally,” Gnaizda said. “We expect a significant portion of the affected funds to enforce gate provisions or otherwise limit/suspend redemptions temporarily.”



Crypto Fund Research expects a record number of investor redemption requests from crypto hedge funds in November that could total about $2 billion. The current record stands at $1.3 billion — set in June following the collapse of Terra’s algorithmic stablecoin.&nbsp;&nbsp;



The overwhelming majority of crypto fund of funds have some exposure to FTX via one or more of their portfolio companies, according to the email.&nbsp;



Related venture funds, too, are likely to face a difficult fundraising environment — at least until the end of the year, sources said — as potential investors question the due diligence practices of even some of the segment’s most-respected investors.&nbsp;



Crypto hedge funds returned about 2% in October, despite relatively flat market conditions, according to Crypto Fund Research.



“November, however, will likely not be so kind,” Gnaizda said. “Not only do many funds face direct exposure to FTX, [but] even those not directly exposed now face the prospect of industry-wide liquidations creating strong headwinds for cryptocurrency prices in the short-term.”



Bitcoin traded around $16,500 as of 6:00 pm ET on Monday — down about 21% from a week ago and up just slightly from 24 hours prior.



Michael Bodley contributed reporting.



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Funds With FTX Exposure Have 7% to 12% of AUM Trapped: Report

<div id="highlights-block_6357d6fa91c5c" class="highlights">
 <ul>
 <li>Opportunity comes from inefficiencies, of which the crypto space has an increasing number, McBrady tells Blockworks</li>
 <li>The firm is finishing the rebuild of its trading infrastructure to better ingest a broader array of data</li>
 </ul>
 
</div>



A former chief investment officer of a BlackRock multi-strategy hedge fund is joining quant crypto hedge fund <a href="https://strixleviathan.com/approach/" target="_blank" rel="noreferrer noopener">Strix Leviathan</a> to broaden its suite of strategies and help the firm capture opportunities in the market.&nbsp;&nbsp;



The world’s largest asset manager hired <a href="https://www.linkedin.com/in/matt-mcbrady-387471/details/experience/" target="_blank" rel="noreferrer noopener">Matthew McBrady</a> in 2014 to overhaul the investment process and operating structure of its $1.5 billion multi-strategy hedge fund — a role he was in for nearly three years.&nbsp;&nbsp;



Before BlackRock, McBrady was head of investment strategy and risk management at alternative investment adviser Silver Creek Capital Management and a vice president for Bain Capital’s North American private equity group. Earlier in his career, he was an international economist with Janet Yellen on President Clinton&#8217;s Council of Economic Advisors.



“Matt’s extensive experience in building and running alternative investment strategies for some of the most demanding LPs in the world is simply unparalleled,” Strix Leviathan CEO Sadie Raney said in a statement. “His skillset and credibility as a successful entrepreneur and an advisor to policymakers and technology startups will be a true asset to our firm’s investment strategies and our investors.”&nbsp;



McBrady began monitoring the crypto space in 2017. He was introduced to Raney a few years ago through a former colleague and has been an adviser on the firm’s investment committee.



“A great time to get into anything, in fact, is when the simple buy-and-hold strategy is no longer a good one, let alone a dominant one,” McBrady told Blockworks. “I think it is a great time to be getting into crypto just because of the crypto winter and all the number of large players that have been shaken out and the stress in the system.”&nbsp;



McBrady decided to take the full-time leap into crypto upon realizing that the inefficiencies in space are temporarily increasing amid a volatile market in part spurred by the collapse of <a href="https://cms.blockworks.co/tag/terra/" target="_blank" rel="noreferrer noopener">Terra’s algorithmic stablecoin</a> earlier this year and the subsequent bankruptcies of centralized platforms, <a href="https://cms.blockworks.co/celsius-to-file-for-bankruptcy-imminently-report/" target="_blank" rel="noreferrer noopener">such as crypto lender Celsius</a>.



“Opportunity in any type of hedge fund comes from inefficiency,” the executive said. “You can’t ask for a more patently inefficient sector that’s tradable in large quantities than crypto in general even when the markets are going up, let alone when they’re still suffering from the bruises from the losses that folks took and the meaningful loss of important institutional players.”



<h3>Opportunities for hedge fund growth</h3>



McBrady is joining Strix Leviathan as the firm is finishing the rebuild of its trading infrastructure to allow the system to better ingest a broader array of data.



Founded in 2018, the company serves institutions, fund of funds, single family offices, and high-net-worth individuals. It currently manages $50 million in assets. 



Strix Leviathan’s flagship Nest Fund seeks risk-adjusted returns to a buy-and-hold basket of digital assets by using statistical models.



“The Nest Fund has captured 70% of the upside and only 30% of the downside, largely by having a really rich suite of risk management signals,” McBrady said. “So the first a-ha [moment] was these can be very easily repurposed into features that can be turned into alpha-seeking signals.”



McBrady said the firm’s research efforts are focused around building market-neutral strategies that complement the Nest Fund.&nbsp;&nbsp;



The new strategy head is also being tasked with helping Strix Leviathan “beef up” its Aurora Fund — a strategy looking to deliver market-neutral yield generation through low-risk arbitrage and liquidity provision strategies on DeFi platforms.&nbsp;



Finding opportunities in DeFi can be done in part through measuring data such as blockchain activity, McBrady said, as well as examining the supply and demand metrics of a liquidity pool.&nbsp;



“A big chunk of it is understanding — especially if you’re making bets on earlier stage layer-1 tokens — ‘Is this healthy? Is the ecosystem going to grow? Are people finding this useful?’” he said. “[A lot] is out there for the world to see, so it’s really just a function of whether you can channel your efforts in the right direction of getting the useful stuff.”



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Crypto Hedge Fund Taps Former BlackRock CIO as Strategy Head

<div id="highlights-block_62055f2e51569" class="highlights">
 <ul>
 <li>The hedge fund specialist had $43.8 billion of gross assets under management in November 2021, the most recent figure available </li>
 <li>Crypto strategies present a fresh set of due-diligence challenges for investors</li>
 </ul>
 
</div>



The asset management arm of UBS, one of the world’s largest hedge fund investors, is conducting due diligence on crypto portfolio managers as the division delves into digital assets, according to two sources familiar with the matter. 



The vetting process for UBS Asset Management, via hedge fund-of-funds unit Hedge Fund Solutions, has been ongoing and has ramped up in recent months as institutional interest in the sector has grown, the people said.&nbsp;



Sources were granted anonymity to discuss sensitive business dealings. A UBS spokesperson declined to comment.



UBS’ efforts have accelerated as the number of crypto-focused hedge fund launches — not to mention traditional asset managers<a href="https://cms.blockworks.co/sources-brevan-howard-launches-first-digital-assets-fund-in-massive-crypto-push/" target="_blank" rel="noreferrer noopener"> starting crypto trading programs</a> — has boomed recently. 



Though Hedge Fund Solutions has yet to back a digital assets portfolio manager or spin up a fund-of-funds focused on crypto specifically, sources flagged the effort as the latest sign that big-time investors can no longer afford to wait on the sidelines. The asset management unit had $43.8 billion of gross assets under management as of November 2021, the most recent data available.&nbsp;



Other large hedge fund investors are expected to follow suit, sources said.



<blockquote class="wp-block-quote">“The people that park their money in the asset management arms of these big banks want crypto exposure just as much as everyone else,” one source said. “And they don’t necessarily have the know-how to source and vet these managers themselves. It makes sense for [UBS] to step in and make it happen.”</blockquote>



The bank has been busy getting familiar with crypto players and learning the ins and outs of conducting due diligence on strategies in the sector. For professionals used to vetting traditional fund managers, taking stock of crypto managers presents a new set of challenges around counterparty risk and custody, asset evaluation and evolving regulations.&nbsp;



“Even if they haven’t backed anyone yet, that’s not necessarily a bearish indicator,” one source said. “These things take time. They’ve got to get comfortable with vetting crypto managers. And they have to make sure their [limited-partners] are comfortable with it, too.”&nbsp;



Hedge Fund Solutions is led by Bruce Amlicke, the division’s chief investment officer.



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Sources: UBS Asset Management Vetting Crypto Hedge Fund Managers

<div id="highlights-block_61f2c0fec2875" class="highlights">
 <ul>
 <li>Lightning Capital is following in the traditional financial footsteps of large multi-strategy hedge funds that have raised billions of dollars running market-neutral strategies</li>
 <li>The firm is headquartered in Stamford, Conn., but is finalizing a move to the growing crypto hot spot of Miami </li>
 </ul>
 
</div>



Cryptocurrency-focused hedge fund firm <a href="https://www.lightning.capital/" target="_blank" rel="noreferrer noopener">Lightning Capital</a>  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.&nbsp;



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



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.&nbsp;



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.&nbsp;



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.&nbsp;



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.&nbsp;



Before forming Lightning, Hwang worked as a valuation consultant and forensic accountant for Ernst &amp; 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.&nbsp;



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

<div id="highlights-block_61eb120ab820c" class="highlights">
 <ul>
 <li>Although valuations for private crypto companies are sky-high, investors continue to pour money into venture capital funds</li>
 <li>The firm plans to cut off contributions to the new fund at $40 million, sources said</li>
 </ul>
 
</div>



Crypto hedge fund firm Ikigai Asset Management is launching its first venture capital fund on the back of strong investor demand, according to two sources familiar with the matter.



The firm had previously been taking private blockchain stakes in its flagship Ikigai Opportunities Master Fund via <a href="https://www.investopedia.com/terms/s/sidepocket.asp" target="_blank" rel="noreferrer noopener">side pockets</a>, or seperate accounts for illiquid assets. Ikigai, run by founder and chief investment officer Travis Kling, initially set out to raise $20 to $30 million for its inaugural venture capital fund.&nbsp;



Investor demand, however — Ikigai marketed the fund exclusively to existing limited-partners — led the firm to cap the oversubscribed fund at $40 million. The vehicle would likely launch sometime this quarter.&nbsp;



Sources were granted anonymity to discuss sensitive business dealings. Kling declined to comment.&nbsp;



<h3>“Outstanding” track record</h3>



Kling has hit on a number of past private investments via Ikigai’s flagship fund, with one family-office investor calling his track record on such plays “outstanding.”&nbsp;



The firm has been investing in venture assets since at least 2019, when Ikigai contributed to a <a href="https://www.finsmes.com/2019/07/digital-assets-data-closes-3-2m-in-equity-funding.html'" target="_blank" rel="noreferrer noopener">$3.2-million raise</a> for Digital Assets Data.&nbsp;



Valuations for private digital assets deals have been soaring recently, but many industry participants don’t expect much of a downturn.



“We keep seeing more and more money coming in, and valuations growing, and rounds becoming higher and higher,” said one crypto hedge fund manager who asked not to be named.&nbsp;



Ikigai’s limited-partners include asset managers and funds-of-funds. Its overall assets under management aren’t publicly available.&nbsp;



In an <a href="https://www.kanaandkatana.com/blog/january-2022-market-update" target="_blank" rel="noreferrer noopener">annual review letter</a>, Kling called 2021 a “spectacular” year for crypto. Huge gains were driven in part, though, “by exceedingly accommodative monetary and fiscal policies,” according to Kling — who added that’s set to change this year.&nbsp;



“The future couldn’t be brighter. But it’s also still highly uncertain,” he wrote.&nbsp;



<blockquote class="wp-block-quote">“It is far from set in stone whether this technology and asset class will deliver on all of, some of, or none of its potential to make the world a better place,” Kling said.</blockquote>



Prior to co-founding Ikigai, Kling worked as a portfolio manager for Point72 Asset Management. Before that, he spent time at the energy-focused asset manager Magnetar Capital.&nbsp;



Ikigai’s chief executive officer is Anthony Emtman, who previously worked for video-focused company <a href="https://studio.jogg.co/">Jogg</a>.



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<hr class="wp-block-separator">

Exclusive: Crypto Hedge Fund Ikigai Tests Venture Capital Waters

<div id="highlights-block_61e01a539eed0" class="highlights">
 <ul>
 <li>Dunamis Trading Group gained an estimated 77% last year</li>
 <li>The firm is pausing on accepting more money until it finishes redoing its trading system from scratch</li>
 </ul>
 
</div>



Market-neutral crypto hedge fund firm Dunamis Trading Group has taken a time out from accepting new capital as the Brazilian asset manager retools its approach to trading after a banner year.&nbsp;



Dunamis now oversees $210 million of assets under management — dwarfing the $20 to $30 million the operation had on hand to start 2021.



Managing Partner Delfos Machado Neto told Blockworks the team decided to temporarily close to new money in the fourth quarter in order to put the finishing touches on a yearlong overhaul of the firm’s infrastructure and trading systems.&nbsp;



It’s an effort to keep up with a trading industry that has “grown up a lot,” in the last year and a half, Machado Neto said — especially when it comes to the rise of decentralized finance (DeFi.)&nbsp;



Indeed, Dunamis is one of a growing number of institutional crypto investors looking for new sources of alpha for their ballooning piles of cash. The median assets under management for crypto hedge funds was $15 million in 2020, according to the <a href="https://www.pwc.com/gx/en/financial-services/pdf/3rd-annual-pwc-elwood-aima-crypto-hedge-fund-report-(may-2021).pdf" target="_blank" rel="noreferrer noopener">latest PriceWaterHouseCoopers data available</a> — an increase from just $3.8 million the year before.&nbsp;



“Essentially, it&#8217;s like there’s a huge increase of what we can trade nowadays,” Machado Neto said.



<blockquote class="wp-block-quote">“If you would have asked me, in 2019, &#8216;You want to trade Solana?’ It was like a couple dollars back then, so it wasn&#8217;t something that was really on the radar that we would be trading. Sushi, Matic, Cardano — all of these things have really come to the forefront of activity, that plus DeFi (generally), we needed to revamp it, spend some time rethinking and redoing it.”</blockquote>



The São Paulo firm’s limited-partners have bought into the revamp, judging from their commitments to invest tens of millions of dollars more at the next opportunity.&nbsp;Those investments will range from network connectivity upgrades to updating feed handlers that interact with exchanges.



Investors have already committed capital for the March or April reopening that would boost assets from $210 million to $250 million, and the firm estimates another $50 million of commitments will roll in next month.



It doesn’t hurt that the strategy gained an estimated, unaudited 77% net of fees last year. Its returns were fueled in part by snapping up open interest on Bitcoin and Ethereum derivatives and leveraging up those holdings. It also engages in market-making functions.&nbsp;



Dunamis started trading in 2017 with proprietary capital, when the main option was spot trading Bitcoin and later Ethereum. Enter the overhaul: giving the firm the capability to trade 30 to 40 coins on a corresponding number of exchanges. It’ll allow the firm to more closely key in on what Machado Neto sees as big opportunities this year: DeFi, crypto structured products and options on volatility trading.&nbsp;



Before starting the firm, Machado Neto spent almost six years with HSBC, where he served as the head of equity trading. Another managing partner, Alexandre Thorpe, who is the firm’s chief operating officer and chief risk officer, also previously worked for HSBC — as did managing partner and chief technology officer Alexandre Pereira.



The firm has grown from little more than a dozen employees at the end of 2020 to more than 40 now.&nbsp;



“We were like 15 people,” he said. “We used to sublet a space, and we have a full floor in a nice building now. We’re an example of crypto growing up.”



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<hr class="wp-block-separator">

Exclusive: Crypto Hedge Fund Says No to More Money (For Now) After Banner 2021

<div id="highlights-block_60c8d82eac05d" class="highlights">
 <ul>
 <li>Hedge fund executives estimate increased adoption of crypto as industry watchers keep eye on inflation threat</li>
 <li>Firms in North America expect higher average allocations to crypto compared to rest of world</li>
 </ul>
 
</div>



About 17% percent of the 100 hedge fund CFOs surveyed by fund administrator Intertrust Group said that they expect to invest more than 10% of their investment holdings in cryptocurrencies in five years.



<a href="https://www.intertrustgroup.com/thought-leadership/the-future-hedge-fund-cfo-preparing-for-disruptive-tech-and-emerging-asset-classes/" target="_blank" rel="noreferrer noopener">The report</a>, published last month, found that those senior professionals plan to allocate an average of 7.2% of their cash holdings in crypto. That figure was higher among executives in North America, who estimated an average of 10.6%.



<div class="wp-block-image is-style-default"><figure class="aligncenter size-large"><img decoding="async" loading="lazy" width="496" height="409" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/06/Graphic.jpg" alt="" class="wp-image-4842" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/06/Graphic.jpg?w=496 496w, https://blockworks-co.imgix.net/wp-content/uploads/2021/06/Graphic.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2021/06/Graphic.jpg?w=312 312w, https://blockworks-co.imgix.net/wp-content/uploads/2021/06/Graphic.jpg?w=317 317w, https://blockworks-co.imgix.net/wp-content/uploads/2021/06/Graphic.jpg?w=266 266w, https://blockworks-co.imgix.net/wp-content/uploads/2021/06/Graphic.jpg?w=80 80w" sizes="(max-width: 496px) 100vw, 496px" /><figcaption>Source: Intertrust Group</figcaption></figure></div>



Ninety-eight percent of the CFOs globally expect to invest in crypto in some capacity, according to the study, while all respondents in North America, Europe and the United Kingdom plan to invest at least 1% of their portfolios in cryptocurrencies.&nbsp;



The report did not state the current average allocations in crypto of the surveyed hedge fund managers.



“CFOs are going to have to really ensure they have those controls in place for investors to be comfortable,” Jonathan White, Intertrust Group’s global head of fund sales, wrote in the report. “If one in six expect to invest more than 10% in crypto, then one in six will need to be prepared for that investment.”



Such preparation will include capturing trade workflow through centralized exchanges or open-source crypto platforms, validating holdings within digital wallets and ensuring API connectivity for accurate pricing with timestamps, White told Blockworks.



If the manager is participating in mining, he added, it must figure out how to handle, record and stake those rewards.



“Essentially the manager will need to create an institutional framework around what is still an emerging asset class,” White said.



<h3>The pull toward alternative assets</h3>



The data comes as hedge fund managers have started moving assets to bitcoin and other cryptocurrencies as industry watchers have said the low yields on government securities and the threat of currency debasement have resulted in investors gravitating toward alternative assets.&nbsp;



Paul Tudor Jones, founder and CIO of Tudor Investment Corporation, <a href="https://cms.blockworks.co/paul-tudor-jones-likes-bitcoin-as-portfolio-diversifier/" target="_blank" rel="noreferrer noopener">said on Monday</a> that bitcoin is “reliable, consistent, honest and 100% certain. He noted that he was in favor of allocating 5% of a portfolio’s holdings to the cryptocurrency along with an additional 5% each in gold, commodities and cash, and added that the remaining 80% would depend on actions taken by the Federal Reserve.



Jones’ comments came after an SEC disclosure <a href="https://cms.blockworks.co/hedge-fund-manager-brevan-howard-investing-in-digital-assets/">revealed last week</a> that Brevan Howard Asset Management “has begun trading in cryptocurrencies such as Bitcoin to complement the dozens of other assets in which they invest.”



Matthew Edwards, CEO of Dalpha Capital Management, recently told Blockworks that he expected hedge funds to enter the crypto space in greater numbers as infrastructure, liquidity and regulatory clarity improves.