Cryptocurrency’s recent travails offer “exciting” investment opportunities thanks to the asset’s favourable asymmetric risk/reward profile, says Robb Rill, chairman and managing director of boutique alternative investment firm the Strategic Funds, which earlier this month launched a quantitative crypto hedge fund.
Established in 2018, the Strategic Funds offers boutique alternative investment strategies to high-net worth individuals and institutions. Its parent firm the Strategic Group, which was founded in 1998 and has been based in Puerto Rico since 2013, runs strategies from across the private equity and alternative investment spectrum.
The firm recently unveiled its Strategic Crypto Capital Partners Fund, a quantitative strategy targeting the rapidly-evolving digital assets sector. The strategy trades the top 10 crypto tokens by market cap, and uses a computer-based hedging algorithm to make dynamic adjustments.
Robb Rill, chairman and managing director, told Hedgeweek the firm specialises in strategies that “truly have an edge and generate alpha”, adding that cryptocurrencies fit squarely within that theme.
“Cryptocurrency has not only had a huge rush – it’s the number one performing asset class in the past 10 years – but after the mini-crash that has just happened where one month is almost a lifetime, we’ve already seen a resurgence, and maybe 30-40 per cent of that has already been recovered,” Rill observed of the current price volatility within digital assets. A range of cryptos, including bitcoin and ether, suffered huge price slides earlier this month before clawing back value in recent days.
“I’m really happy that happened right around our launch because when you have a USD2.5 trillion asset class which was at zero less than 10 years ago, that’s a pretty frothy market. But it’s more exciting when you see a correction come in which gives you the opportunity to have exposure to the asset classes, versus being concerned that you’ve top-ticked it.”
The Strategic Funds’ alternative strategy range includes a number of algorithm-based systematic funds which trade commodities, equities, FX, rates and volatility, as well as niche non-algo vehicles focused on energy and short trading.
“Unlike most of our algorithmic strategies which are truly black-box strategies, this is really designed to be almost a smart beta index,” Rill said of the new crypto fund.
“There’s no arbitrage per se, and there’s intentional exclusion of certain coins that either don’t meet the proper mandate, such as stable coins which don’t appreciate or depreciate much beyond a very narrow band.”
The new fund has an active trading strategy with a weekly rebalancing component on a market cap limited basis, so that no one single currency is dominant in the portfolio.
“If you have a mechanism where you’re not trying to individually pick winners and losers in a complex space like this, but rather you’re getting exposure to an asset class that is now considered a legitimate emerging asset class, this is something from an asset allocation model point of view you want to dedicate some of your assets towards, because the asymmetric risk/reward is so favourable,” he added.
“When you do that calculus, I think everybody should have some de minimis exposure to the asset class. That’s why we designed the strategy to algorithmically give exposure to the asset class in a hedge fund wrapper.”