How to Set Up a Crypto-focused Investment Fund | European Blockchain Convention

[Music] oh Judy um I'm very happy to be here with you today me too um maybe some of you know or don't know but Luxembourg is the second biggest fun jurisdiction in the world after the United States so it's definitely a place where Finance is done nine of the 10 biggest private Equity houses of the US have their European operations in Luxembourg also seven out of the 10 biggest Chinese banks have their European operations at Luxembourg and it's the fourth biggest Islamic Finance Center in the world so um I'm very very happy to be interviewing Julie who is the head of legal of the first alternative investment fund manager who has a license to serve regulated crypto funds in Luxembourg and I think you're the only one uh until now exactly thank you AR uh so you said everything basically I'm Julie bouro so as I said I'm the head of legal at six months which is the first authorized uh alternative investment fund manager uh in lambour capable to manage crypto funds unregulated and regulated crypto funds um uh uh yeah in luxemborg so we got the license back in March 2024 so uh a few months ago uh and we manage uh as we say crypto fund thanks to the to the specific license we got and private Equity Funds Venture Capital funds uh whether link or not to uh crypto VC project uh and web web Tre projects um my name is Harry I'm one of the co-founders of the Luxembourg House of web3 which is a not for-profit Organization advocating for the adoption of web3 in the financial sector but also in wider Civil Society um Julie can you give us a state of where the um European uh digital asset fund industry stands for the moment yeah maybe we can uh start with a few figures so uh and we can look at the general uh of a general overview of the European alternative investment fund Market uh in terms of figures so opportunities are are great and and and and and big so they're uh under management uh 100 uh 100,000 billion uh of uh of Euros under management so if we say that crypto assets as an emerging asset class just take 5% of it of it uh uh I mean it's a it's a it's a huge proportion that we can manage in inflows um this is for the figures uh this is also a lot of things going on with Mika uh in the in Europe so there are a lot of um um aspect of MAA some are are very uh people are speaking about some burden some some something like that but I think Mika will will give the a lot of opportunities in terms of institutional actors uh speaking from the uh man external manager manager perspective it will give us a lot of opportunities in terms of two diligence or stakeholder for instance on the virtual asset service provider that become crypto asset service provider um it will also uh give us the possibility to attract Institutional Investor on this merging asset class absolutely we receive a lot of questions in the house uh from Project owners so people that actually are issuing either coins or tokens but also you know people that would dwell in digital asset industry um talet and Traders and so on to set up or to launch a fund in Luxembourg because it's a brand it's easily marketable everybody knows the Luxembourg fund type of brand but how do you go about setting up such a fund actually what would be the steps yeah so for inance the the first step I think uh when you want to set up a fund uh in Europe a crypto Fund in Europe first thing to do maybe is to look at the the good structure the good structure in terms of vehicle uh to use a good lawyer like Q uh to set up the funds in term of structuration there are some very specific uh aspect to take into in consideration right from the beginning I mean in terms of investment strategy uh in terms of the way uh the distrib tion will be made uh performance fee etc etc so I think that there are some um some traditional uh finance and traditional investment fund setup to be taken into consideration whether it crypto or not um there also so at 6m we see different type of of clients uh we see clients coming from the traditional Finance Finance sit with asset manager uh coming to us looking for the establishment of a crypto Fund in Luxembourg uh because as you said it's a it's a place which is well known for that in terms of asset under management uh it's the second place in the world so people are coming to Luxembourg for uh management uh of funds as well as administration of funds uh because we are very good stakeholder very good player in the field um so uh and and people are coming from as I was saying people are coming from either the traditional Finance uh asset manager looking for an exposure to crypto or we can see also uh John vent Venture partnership between actors of traditional finance and uh actors of uh the crypto space so asset manager in the crypto for instance so they are looking at Luxor family office also are are looking um looking at implementing crypto fund uh and found an exposure to crypto for the family uh and we have also uh clients from uh prospective clients uh from the crypto space uh people that Venture capitalists that they are also of good client base investor base and and and good track record in terms of Investments and I want to scale up and see how to attract um uh institutional investors uh on a on a crypto fund now that's really impressive and quite a broad spectrum of clients you're having on such a short time so congratulations with that um setting up a fun is like going to the restaurant right you have a lot of opportunities you can go to the McDonald's to still your hunger or you can go to a michelan or restaurant as well and you really dine out fancy if you uh were to give an advice to the audience uh uh here to set up a font why would you go for a fund that is onshore regulated and appoint an alter alternative investment fund manager as 6m what is the unique value proposition of a company like you that comes of course with a price ticket yeah um there are multiple uh opportunities that this setup give um for instance the the first one I see is the capabilities thanks to the passport of the ifm to distribute the fund uh in a more broader sense because when you uh have a fund which is maybe a fund with a with a which is not managed by your notorized ifm you can for sure Implement fund crypto fund nomu or elsewhere in Europe uh but without the scope of the uh and the umbrella of the authorized ifm you are very limited in terms of capabilities of distribution of your fund uh because the ifm has de facto uh a European passport uh it GRS the European passport that give you the possibility uh to the extent uh you organize well the notification with the appropriate Regulators in in the competent Authority uh in Europe in the in a specific country um the possibility to to to distribute your Fund in a more broader sense whereas when your fund is not managed by an external alternative investment fund that is authorized by your regulator uh you are very limited and basically you can do uh you cannot do uh you cannot uh Implement a distribution strategy a marketing strategy you can only do reverse solicitation for instance so as a manager and as a fund promoter you're limited in terms of uh distribution opportunities uh I think that's a very fair point and the point that we often repeat in the law firm as well and in the house um a lot of crypto guys you know they make a lot of um very inventive products also from a financial perspective but there seems to be some edication that needs to be done in terms of it is not the case that you can distribute your tokens and Market them in the European Union unless you rely on either an investment firm broker or in a fund type of structure work with an alternative investment F manager uh like 6m of course a lot of people reply then yes but our token it's a utility token well then even so as from January 2025 the rules change and so that that net is really closing in uh in Europe and so it's a a very very good point yeah as you said token or or shares of funds or shares of funds so you can use uh professional Distributors and the distribution strategy of the fund that we see of the crypto fund we see is is very specific because usually people are are are relying on their own ecosystem front promoter are relying on their own ecosystem own investor base so things are pretty easy but I think that this is also uh what the alternative investment fund authorized can can can provide it's the possibility to to link and to to contact distributor placement agent to be able to be well placed in the in the network to be able to distribute your crypto fund uh like any other alternative investment fund uh whether it is private Equity Fund Deb fund or or other thing and this is clearly our goal uh make this emerging asset class really uh not a competitor but uh well placed than any other asset class no it makes total sense um I know that she also have a license not only for digital assets but also for private Equity exactly what is the link between the two in a VC blockchain world I would say Okay so the the the first reason that we request also the license to manage private Equity Funds was linked to the fact that everybody in the team in the 6m team is com coming from the traditional Finance yeah so we set up the the the we implement the fund uh the The Firm sorry uh almost three years ago so we already right from the beginning we we work a lot on the file to uh for the regulator to to to to to to file the license actually and uh everybody is coming from traditional Finance uh at private Equity clients big investment private Equity house uh in uh in in the pipel plan before so we said okay so this is what we can do basically so let's uh let's let's ask this uh this this license as well and the other reason is that if we go back in into 2018 18 there were a lot of crypto funds that was uh labeled let's say as uh private Equity Funds uh because they were very close to the to VC funds uh they were investing in an early stage token so basically the token was here to to ensure the development of on a on a of of a project of a token on a on a dedicated blockchain so as I think um it was easier to to to to say that it was Private Equity fun so and still we see a lot of projects going on uh that are web three uh Venture Capital fund projects uh and with fund investing in U in company active in blockchain for instance uh developing a project or a service in a dedicated blockchain or utility token very early stage uh so this is why we ask also this license we say that it was completely makes sense uh thanks to positioning um Luxembourg adopts a regulatory agnostic approach to uh digital assets right there are no specific let's say blockchain laws dedicated to digital assets alone they uh inscribe themselves in the existing regulatory framework that already Works quite good for Luxemburg as a financial center um there have been some changes have been made to the legal framework with four uh blockchain laws that have been uh enacted um of course having the laws in place is one thing but you need to have an entire ecosystem I think of Partners in place that can accommodate that I think about custodians depositaries Banks Auditors uh we saw that in other countries as well the laws were voted but the infrastructure was simply not there can you maybe elaborate a little bit on that and and how would that work so as you said um except maybe the blockchain lows uh 1 2 3 4 I think now um there was no specific laws or regulation elaborated in lour uh with respect to crypto however uh the the regulatory lour has very early in very early stage provide some guidelines uh write some paper provide some fqs uh to to give the the industry some guidelines and some framework that has to be respected so we we we add we add Clues on what and how to do to do things and uh second thing that that we we take into consideration you're right is the the ecosystem around us because it's very important six months is working in an open architecture and we are here really to facilitate the implementation of the fund uh and of the the project of the promoter uh in Luxor so so clearly we work a lot on the ecosystem around us Gathering all the partners that we could uh as you said in terms of depositary Bank depository uh as custodian uh very early we we we discuss with uh with Partners like zodia for instance uh zodia custody which offer a very great uh custody infrastructure infrastru um custody solution uh we discuss a lot with um um with uh depositary Bank as well in lambour uh uh so everything is is uh moving in the right direction in lour I think because uh before 6m there was no I FM so no it's the case and to implement uh a fund under the scope of an alternative investment fund manager you need to gather these actors you need to start with the depositary bank depositary you need to when it's um when the fund is investing into digital asset you need to have a custodian uh which is virtual asset service provider and soon Casp uh to to do to do the safekeeping of the virtual asset you need to of an auditor and this world framework give I think legal certainty um to the to the to the to the fund to the ecosystem and provide also um uh a steady regulatory framework which I think that the Institutional Investor are really expecting yeah and on the institutional investors a lot of uh project owners that want to launch tokens or or um you know the underlying projects they are concerned or they have a big question mark is anyone going to buy the tokens or is anyone going to invest in my you know dig digital assets type of project right how do you go about the fundraising and how do you see the asset managers implement the fundraising strategy for digital assets it it depends um maybe speaking of the asset manager it's very important for them to execute their own strategy very important they they I think it's even more important than in the traditional finance and and classic private Equity Fund they really want to execute the strategy control it and to see all the things will be done so either we delegate the asset management Investment Management part the portfolio management or either we keep it internally it depends really so if we delegate it it has to be delegated to a a regulated entity which is very important um and in that case uh clearly it's the portfolio manager that it is executing its own strategy SO trading executing trade etc etc and we at 6m as ifm we are really here to ensure that it's done uh in in compliance with the laws and in compliance with the IML rules etc etc for the fundraising it's a bit different uh I would say from a fund promoter to another as I said there is a possibility to uh put in place an investment strategy which is a bit close but with the promoter having it of its confidence in in its own investor base and capable of uh do the fundraising itself or we can uh provide the assistance with um um uh distributor professional Distributors that we uh that we have to to to to connect the the fund promoter and the and the and the distributor to implement the fund distribution strategy thank you and I think it does help right for institutional investors if they receive a deal proposal uh of a fund to be subscribing and you're already the ifm with the ecosystem that goes with it right as opposed to the unregulated let's say funds weth issuance wealth this is at least what we see yeah if there are people that are in the room that want to invest in a digital ass can they contact you yeah for sure they can uh this is also the business that we have at at 6m um we have the third party business uh third party promoter business and we also have inos fund exactly um we uh we we manage a um a reserve alternative investment fund with a liquid strategy at 6m so for sure if um if there is a need or question I can I can answer them um I think that we are more or less going towards the end of the time that we have here maybe a last question is on the security measures that are in place you know because of course digital asset can be rather volatile especially maybe in the trading space less so in the security token space if it are tokenized financial instruments are there specific security mechanisms legally operationally smart contract Alik you know that you implement to before you propose them to investors or not directly at 6m um but we have to ensure exactly that um um the assets are s kept in a in a in a in a good and and securitized way um typically we are here to protect the asset of the fund and to protect the interest of the investors um so we have to make sure that the uh entity that is chosen as custody because we cannot do uh self custody and the fund promoter in a case of a regulated fund cannot do uh self custody uh we have to ensure that the custodian uh the the implementation the the technology and the and the custody solution uh provide for the best uh security framework yeah and we we ensure that through the due diligence that we perform at the level of the of the custody solution makes total sense look um nothing rest me than to wish you uh good luck with 6m and the entire team congratulate as well with the achievements you have so far over the last six months uh I uh I heard you have several funds now that you're servicing so keep up the good work and thank you very much thank you AR thank you [Applause]