Michael Bodley

<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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Bitcoin mining

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 class="wp-block-heading">“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 is-layout-flow wp-block-quote-is-layout-flow">“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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Hedge Funds

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 is-layout-flow wp-block-quote-is-layout-flow">“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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Alexandre Pereira

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

Ben Strack

<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 loading="lazy" decoding="async" 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="auto, (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 class="wp-block-heading">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.

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