Multi-Strategy Digital Asset Investing | European Blockchain Convention

[Music] hi everyone so thank you for coming to hear our um panel today on Multi strategy investing in digital assets my name is Vladimir um I representing Pon Investments where uh we run both a venture strategy focused on uh crypto projects focusing on the seed and series a state features as well as a liquid uh strategy focused on yield from the crypto space and digital aset space um so I would like to kick off uh with a short introduction from my fellow panelists guys if you can maybe start with a minute on your kind of your background and the background of your companies maybe K I know you have a background both on the sales and the buyze so maybe we'll start with you and then we take it from there sure sounds good hi guys I'm Katie Allen um as Vlad mentioned I straddle the buy side and the sell side um I've been in the markets almost 20 years I began my career in foreign exchange doing institutional sales for about a decade for UBS Bank of America um then I retired and ran my own Tech startup for seven years um and I came into crypto about 4 years ago which I think is a good intersection of Curren in Tech startup so good fit for me um focused on institutional sales at a crypto trading firm called block fills and about 6 months or so ago um I moved over to the buy side block phills launched an asset management business in December um so now I'm running BISD for Cirrus digital the asset management arm of block fills raising for a market neutral fund right yeah hi everybody um my name is Brett Lions I'm the co-cio and co-founder of um an asset management company ven hedge we are a multi strategy fund of funds so we invest in about um 30 different fund managers across asset classes um so traditional asset classes such as public and private equity we have a traditional hedge fund portfolio um and then we have a digital asset crypto fun of funds um which specifically has about a dozen fund managers in it hi everyone I'm anons I run a digital assets hedge fund called Silver Capital we're a US firm but most of the team is actually based in London and we've been around for 9 years so I think we were one of the first hedge funds to start allocating to this space we have a strategy that combines research for asset selection with quantitive models for risk management and hopefully today I can share some insights on this Market how we've seen different Trends come and go and commment institutional adoptions as well um over the nine years that we've been trading this Market thank you guys thanks for the introduction so number of different strategies here from what I hear um maybe you could comment uh on the current landscape uh where you see for current investors looking to get an allocation to the digital asset sector um what are the most prominent and interesting strategies out there right now and uh why what are the benefits of those sure I can I can kick us off um so I have a unique perspective having been at a trading firm and now at a hedge fund um I would say my time in Block fills we have seen a lot of fundamental discretionary long funds launching and those kinds of strategies have been really popular I would say kind of in the last 6 months or so um leading up to the bull market run in crypto now I'm at a market neutral fund so I have to talk my book here for a minute um you know it's been very choppy leading up to the bull run so to speak and I like having a market neutral strategy in a diversified portfolio just to sort of battle test the downside you you know it's been very choppy we had Black Monday um so I think you know Market neutral isn't the sexiest um strategy right now but crypto is super volatile and it's not straight line up and to the right so I would say we're a little bit differentiated um than some of the popular strategies out there right now yeah totally I I'd Echo that I think um you know we we've always thought that the best diversification in crypto is diversification across different strategies um you know I mean you can take a diversified portfolio of crypto assets but there are idiosyncratic factors that affect different crypto assets but you know at the end of the day um the correlations between these assets are all quite High um so we we we actually started as a crypto headed fund back in 2017 we managed um we manage the money ourselves um at the time we were running only one strategy long only crypto um so we kind of saw firsthand the the um importance of diversification uh the the volatility of of running one strategy particularly um when it's unhedged um both up and down so we kind of came out of that 171 18 cycle like you know how are we going to prevent this type of draw down from ever happening again and you know what we came up with was diversification across strategies and um you know we see it in traditional markets there's a whole spectrum of really interesting strategies to allocate to so on the fully hedged Side Market neutral type strategies that Katie was talking about um various types of Arbitrage so statistical Arbitrage basis Market making um and then kind of going up to semi hedged strategies um systematic Trend following I mean any asset that has a price can can um be Trend followed you can probably speak to that um so that's more like quantitative systematic and then we also allocate to um discretionary strategies as well so semi hedged you know um uh crypto long short strategies they tend to have some long bias in there um and then up to Long only and Venture I think you really have a diverse fun landscape you have fundamental funds that are focused on finding the next few tokens that might do really well uh based on trends that are ongoing in the industry so fundamental you have non-directional funds that are really trying to exploit frictions in the market they we tend to see more fun launches when the basis comes up because there's more opportunity to trade that and and get some yield um also when D5 was hot we saw a lot of fund launches around that so the market neutral non-directional guys seem to be very opportunistic and I think the past year or so has generally been good for those skies because even though they're non-directional you tend to see a lot more frictions arise and last during ball markets because participants focus more on price rather than relative value proposition so non-directional space is very strong you have the liquid Venture guys again which has some overlap with fundamental because you're investing in Venture propositions they're very early stage tokens but you suddenly have liquidity so it's different to traditional Venture Capital with a close ended fund with a 10-year life here you have a bit more optionality to ex your Investments earlier on that has some overlap with fundamental liquid strategies as well on the hedge fund side where we position ourselves is more on the what we call quantamental so we think there's value in researching the asset class to find up and cominging Trends assets that we think will appreciate over a medium-term horizon but combining that with models that we have seen deployed successfully in other asset classes that we think can add value to control risk in our asset class because when you invest in this market you're dealing with very high volatility very high draw downs and I think we've seen a lot of demand for structures or products that can try to mitigate those risks for investors that believe in the industry potential but don't want to stomach that level of risk Brett maybe a question for you uh coming from a fun of fund side of things because we mentioned a number of strategies now you guys running a fun and fund strategy how do you uh maybe you can say a couple of words how do you get to the optimal kind of allocation in terms of the different funds and the different strategies what is your approach there yeah I mean I think it starts at the manager level um you know like traditional funer funds investing I mean it's nice to have a portfolio of different strategies you try and fill out the different the different buckets um um but at the same time probably even more important to to think about the managers and and kind of start at the manager level so you know just really looking for experienced great managers I mean you know crypto hasn't been around around that long so you know the track records aren don't go back that far so it doesn't you know have to necessarily have a long track record but you know other parts of these managers that um demonstrate an ability to execute on the strategy that they're trying to pursue have an robust operating environment um but yeah I mean I I think um and then when you diversify across managers you sort of inherently get diversification across strategies at the same time I mean we allocate to some managers that you can say okay you know they are both discretionary long biased managers but you know when when you put two long biased managers together um you you end up seeing some some dispersion and differentiation um just because it's different management styles and you know of course there's lots of great teams out there that are more Market neutral and fully hedged and focusing on Trend and Market making whatnot so um you know obviously those are completely different risk return profiles than long oriented fundamental strategies so um yeah I think you know once you get to a certain number you start to get a lot of inherent diversification cool thank you um so we discussed now a couple of the benefits and the fundamentals Behind These strategies um can we talk maybe a little bit about the limitations um because especially if we're talking about maybe Market neutral or more systematic strategies there certainly are some limitations in terms of for example uh liquidity or capacity and scalability of of these strategies um how do you guys deal with that and um what what is your approach sure um I'll take that so we actually have a multistat approach to our Market neutral fund um because as you mentioned there are liquidity and capacity constraints especially with Arbitrage type strategies they Arbitrage opportunities because liquidity isn't you know isn't great and the market isn't as efficient as say an fx market for example um as you get bigger positions and the market gets more liquid then those um those Arbitrage opportuni is narrow so in addition to sort of AR Market making traditional strategies we have a Futures Trading strategy where we look for kinks in the yield curve um and we trade around fair value so in the Futures Market you have greater liquidity so that's one way that we um increase capacity in our fund and then we have a stat ARB strategy that's like a long short dollar strategy that Endeavors to be dollar neut and can go long or short Bitcoin and e um based on the signals in the fund and there's more capacity in that so as we grow our AUM we tweak sort of the allocations to those three strategies um based on you know what the strategies can hold capacity wise but in general not even just for Market neutral liquidity is an issue in crypto and um you know some of the liquid token funds and these discretion long funds have issues too you know building out a sizable position in an altcoin takes weeks um or months even so liquidity is always at a premium for crypto just to add to that what we've seen following the launch of the ETFs in the US for Bitcoin and E now is that the difference in liquidity between those assets and the longtail of altcoins is exacerbated now so it is easier you're now perhaps to a year ago to trade Bitcoin Ethan size but if you're trying to get altcoin liquidity it really is a struggle and it also depends on how much risk you want to take on with your counterparties because if you want to stay within regulated pools maybe you training with public companies if you're more conservative like we are you're not going to access the same level of liquidity and if you are happy to go offshore and trade in unregulated venue so there's often a trade off in terms of the risk factors that you take on in terms of the liquidity pools that you decide to trade with but I would say that the gap between Bitcoin e and the rest is exacerbated um in recent months and will would you say that the recent approval by the SEC of the Black Rock option uh options on the ETF how do you think that will impact your strategies and the industry in general well we don't trade like we're we're not incorporating ETFs into our strategy but in general the more products the more participation the more more liquidity the better um for the market in general so I'm I'm bullish I love those signals I love the adoption nice I'm really hopeful those options on the ETF will help the option Market to grow because it's still relatively nent durit is the largest options venue by far they have maybe 90% of the volume but it really is still a pretty small market so if you want to run an options based strategy I was having this conversation with a market maker recently they think that you would be able to run maybe 50 to 100 million that would be your maass capacity in in their View and if you're running a fund of that size it's very hard to be institutional it's very hard to take capital from large Asset Management firms Pension funds you name it it's hard so I really think there's a lot of opportunity for the market to grow and I think that that product will hopefully contribute to wors that yeah just to add to that I think I mean options are great risk management products um in in you know traditional hedge funds they're commonly used by hedge funds to um kind of overlay and get downside convexity onto the market and um you know so opening up a regulated option exchange um on the on the ETF products in the United States is is going to I think open the doors it's just another tool in the toolkit for managers to kind of in the exact amount of risk that they want at any given time okay clear um but uh we mentioned market makers now and uh what one question I had was maybe if we can start Once Again Brad with you when you look at different funds I mean obviously in the especially I think thetion is better now but in the past cycle counterparty and credit risk was a big big theme is that something you focus on when uh picking funds when you do the due diligence on the funds that you invest in and then fun on KT may can cover as well how your firms kind of um try and tackle that risk yeah I mean we you know we definitely look at funds um maybe like prior to FTX I remember looking at a quite a few funds that would run on only one counterparty um um um I I mean you know funds that run options only strategies have you know have really been uh only able to operate on derit so um from a fund to funds perspective we we can allocate to a manager that is concentrated in one um counterparty just because we're running a diversified portfolio so it can be Diversified at the portfolio level um but I mean that's as a fun of funds investor I mean you know any any One Fund that is investing all of their Capital entirely on in one counterparty is is um um quite risky um would not recommend that um I I think post FTX we definitely see managers thinking a lot more about how to manage credit credit risk and and counterparty risk uh across the space including not only the managers but also the industry I I I think there's been a big push to um for the industry to you know have more transparency onto um the the reserves that are backing different exchanges and um just genuinely I I see the industry trying to repair itself after the FTX blow up which is um a very great thing to see yeah crypto definitely has a trust issue that we are slowly rebuilding after FTX and it's been interesting for me just coming from the foreign exchange markets like the kyc really goes both ways you know it used to be sitting at UBS who is this client let's put them through the ringer and it's you know it goes both ways in crypto um hedge funds are putting trading firms through the ringer and vice versa uh I think that's really healthy and good like you said earlier about the management teams you know you can't just look at a balance sheet of a company anymore to predict the stability of the company I love working for a company where you know our head of options is 58 years old and he was a partner in Goldman Sachs and he's you know he's been through the financial crisis and whatnot um and having a management team that's conservative and understands risks is very important now to get into the nitty-gritty of like Sirrus and how we're thinking about risks we use Solutions like hidden Road for example to um ensure our funds on Exchange we try not to keep funds on Exchange we call home our assets every night and basically only leave on Exchange what we need to for operational purposes um so yeah those are some of the things that we think about when mitigating risk I think what's really important in this space is that you can have the risk of extreme losses not only from Market risk meaning draw Downs losses in price but also from blots from current parties or technical issues as we saw with Luna so it's important to take that into account when you think about risk factors of having exposure to digital assets because if you're not ful enough if you're not diligent if you're not doing kyc on your CER parties as Casey was saying there's a chance that you will be taken on risk that you're not aware of so it's about understanding the risk making sure you're being compensated adequately for the risk you're taking on and for us we take on enough market risk as it is because we have a long buas strategy we decided from inception not to layer that with credit risk and Technical risk on top which is why we've been relatively conservative we only trade with public companies as I mentioned that's helped us over the years to be able to bypass many of the issues the industry has seen we invest in a more M more mature segment of the market so typically the top 15 by market cup so we do a lot of technical diligence to make sure that we understand the protocols that we're exposed to the value proposition the vertical for growth so there's risk factors that you don't often think of in other asset classes that are very pronounced in IND digital assets I would say absolutely um and you know all of you guys have been industry in the industry for a number of years and uh you know as we've seen the industry evolve so we have the strategies and um uh kind of more more the strategies that are prominent currently or more successful um however we have as in your case Alonso and and Brett like you mentioned for you guys the strategies have evolved and you know which which is a bit different to the traditional space where you know if you start a fund you know you have to stick quite rigorously to the rules out there uh not not to the rules but to kind of the investment mandate uh as it it seems that in crypto and if we're talking about multi strategy investing flexibility is quite important um what could you comment on that a little bit yeah um yeah I think um especially for discretionary managers it's interesting we've we've seen some discretionary managers who've um left their invest program quite broad they can invest across asset classes different instrument types they have the flexibility to go from zero to 100 and back down um and you know we we see managers who have very strict investment programs uh that you know on the discretionary side um that you know say it's exactly half hedged uh at almost all times and they rebalance pretty quickly to that um if it deviates um I mean I think I mean crypto these markets of evolved so fast I mean the market regimes changed so fast um you know week by week month by month um I think I I've seen managers have success leaving um having flexibility and and um you know utilizing that flexibility um I mean at the same time maybe you can speak more to the market neutral side I mean you know those are pretty cut and dry strategies right I mean you you have your bread and butter and you know there's not anyway I'll let you speak to that yeah I would say there isn't a ton of wiggle room in Market neutral um but there are trades basis trades for example um different trades that become available depending on what's going on in the market obviously the basis trade blowout was pretty awesome a few months ago and that's come in quite a bit um we so and I'll speak to this um as well but we had demand from some of our clients to offer a Bitcoin fund for example blockville has a large presence in the mining space a lot of Miners and that was sort of the Genesis of blockville derivative trading business was preaching hedging to bitcoin miners um and so we've seen a lot of demand for earning ways to earn yield on a core long position in Bitcoin um especially now with Bitcoin kind of retesting the highs you know what can we do to earn some yield on our core long without selling it and reinvesting it somewhere else so um we launched in June a Bitcoin share class for our fund um so you you know you invest in kind statements are in kind and so that's been like a change um that we have you know we've met Demand with the market and we've been asked by investors to do it for eth and salana so you know who knows but um that's some of the some of the things that we um that we have done to kind of change with the markets and address changes in the markets maybe just to add from from my perspective when we started in 2015 you really didn't have tools to manage risk actively you didn't have liquidity you didn't have derivatives that you could rely on you didn't have data to build models so back then we had a more liquid fundamental version of our strategy but to Brett's Point our documentation was fairly flexible in terms of what we could do the instruments we could trade because we knew that we were very early on into the market and we could see that it would we didn't know exactly how but we would see we saw that this would mature over time and grow a new financial instruments would come into play we would have more data we would have derivatives and we would be able to iterate on our strategy to become more like traditional hedge funds which is where we are today and where we've been for for the past 40 years where we try to use models and some of these tools like deres and data to protect the portfolio during difficult times and make sure that we're mitigating losses for for investors so there certainly be an evolution as the market has matured for us and I think key to adapting your strategy is not only the flexible documentation but also communicating with investors making sure that they understand the changes you're making to the portfolio that they see the value proposition and there there still are comfortable with the profile of your product communication definitely you know a big deal for crypto it's we're all about transparency communication we do like a monthly you know email to investors saying you know we're now trading with this exchange and this strategy did well and this one didn't do as well and this one outperformed and our this is how our AUM is changing and these are some of the decisions we've made and it's important I think to have that kind of communication with investors yeah and uh we spoke a lot about Bitcoin obviously um but uh I guess everybody in the audience is also interested you know we have a lot of projects here at the confence that we have a lot of tokens and projects out there are your firms looking you know at trading assets further down the pecking orders and not just Blue Chips let's say not just Bitcoin and ethereum but are you looking at launching new products focusing on the altcoin market or BR is your uh fun of funds also looking at funds that Focus just on altcoins rather than BTC and E yeah um yeah we we have um one I mean I we have several managers that that go pretty far out the risk curve and and trade um altcoins I mean it's an interesting uh risk return profile um uh the kind of liquid Venture Long only style of investing is is is definitely kind of one piece of um of the Mosaic so to speak for us um yeah I I I think you know it's also um I would say can be somewhat of a crowded space um you know there's lots of managers that are kind of trading trying to play these assets on the long side and um yeah I I think just really understanding the risk return profile because you know the the the returns can be extraordinary and you know the risk can also be uh uh extra it is also extraordinary we don't go down the tail um liquidity is is Paramount for us so we stick with our spot ARB opportunities um just to the top 10 liquid tokens and that mix will change and we will change with it we're similar to KT we're really focused on the more mature segment of the market so top 15 because that allows us to trade actively and make sure that we can get out of the market when we need to without having to pay very big spreads or running into other liquidity issue so we're on the more conservative mature side of the market as well okay cool and now we're we're coming slowly to the end of the panel maybe just some final remarks from you guys of you know you know what you expect expect uh the market to go at least from multistrap funds you know into year end and how you see the market for the next 6 months I'm bullish despite being in a at a market neutral fund um but as as I mentioned you know I think it's a great thing to have in the mix um to weather those downturns that you get on the way to um to the top so I'm bullish I'm looking forward to having some post election trading happening Clarity um getting some of these um high pressure events sort of out of the way but I'm bullish over all the landscape and um yeah Rising Tides lift All Ships so yeah I mean I'm optimistic too I I always hesitate to give directional calls on the market um I I think probably um we're going to see a different type of Market going forward Ward than what we've seen in the past so I I think people should um kind of prepare to have a different Market environment that what we've seen in the past um yeah and generally you know I we're we're we call we're diversification maximalists I me you know and that's the fun of funds approach I you know we we we think multiple managers multiple strategies um is is um a great way to go I really think that the ETF launches in the US have established this as n class you have black brck and Fidelity backing this and using their marketing um capabilities to really push this to investors and make a case for this being part of institutional portfolio so I really think that that was a pivotal moment for our industry on the asset management and investing side of things I also think that the rhetoric at the government level we seeing that in the US is a game changer because if we go back a few years we couldn't even think about a presidential candidate thinking of creating a strategic Reserve holding Bitcoin so just the fact that that's on the table and being discussed is is complete GameChanger because more likely other governments will start have simar discussions in central banks and that creates a really interesting room for strategies to to grow and institutional to become more allocated over time so I'm very positive in the long run shortterm will be driven by our models which we see as our strength um so it's hard to give shortterm directional views for us great great to hear that everybody sounds positive thank you very much for joining me and I hope everybody enjoyed that so thank you very much sh [Applause]