The fall out of the collapse of FTX and other players in the digital assets space shone a light on more cautious managers who took additional steps to shore up their risk management processes and remain steady in the storm. Jaime Baeza, Founder and Managing Partner, ANB Investments, explains how the firm has navigated these testing times…
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The fall out of the collapse of FTX and other players in the digital assets space shone a light on more cautious managers who took additional steps to shore up their risk management processes and remain steady in the storm. Jaime Baeza, Founder and Managing Partner, ANB Investments, explains how the firm has navigated these testing times…
How have the events of the past year impacted your clients and your firm?
ANB Investments had no direct financial loss to any of the catastrophic collapses in the industry over the last year. This was largely due to our strict risk management rules and procedures, along with our determination to follow them rigorously.
However, many of our clients lost a substantial amount of funds due to the bankruptcy of FTX and other centralised players in the crypto industry, either directly or indirectly due to their investments with other asset managers that were impacted by these collapses. These incidents affected our assets under management (AuM), as some of our LPs have temporarily abandoned the crypto space altogether, and others decided to reduce their allocation. Furthermore, potential investors that were on the verge of investing in our fund, chose to take a more cautious approach and delay their investment until there is more regulatory clarity and less perceived counterparty risk.
Nonetheless, this sentiment began to shift at the beginning of the year, and we are starting to observe new inflows to our fund, both from new investors and from LPs that decided to curb their exposure at the end of 2022.
Ultimately, we are confident that the successful way our firm navigated this turmoil, together with our exceptional performance track record, will enhance ANB Investments’ position as an industry leader and will attract more investors to our firm.
What has been the most significant change you’ve observed in the industry?
The most obvious change is the massive wipe of funds across the industry, as a consequence of the decline in prices but especially due to events such as the collapse of the algorithmic stablecoin UST or the bankruptcy of important centralised players such as FTX. This, in turn, has shone a spotlight on the importance of risk management, notably counter-party risk.
At ANB Investments, we had always been wary of the general underestimation of counterparty risk in the industry. Accordingly, we let past opportunities to enhance our yields because they did not match our risk standards, which in turn, has paid off.
Can you list the factors which can impact investor demand both positively and negatively?
Regulation, counterparty risk, and market timing are the key factors driving investor demand for digital assets.
The emergence of regulatory frameworks for digital assets will give investors greater confidence, while custody providers have continued to develop to address counterparty risk concerns. Accurately timing investments in digital assets can result in significant returns, but timing the market is always challenging.
As the industry matures, these factors will continue to evolve, shaping investor interest and demand for digital assets as a new and evolving asset class.
Which are the most significant challenges in the digital assets industry right now and how can they be best mitigated?
Counterparty risk and regulatory clarity. Counterparty risk is a significant challenge in the digital assets industry, particularly brought into the spotlight after the collapse of FTX.
The key issue is that exchange/trading and custody are seldom separated in the industry, and centralised exchanges commingle customer assets on their balance sheet.
Numerous efforts are being made in the right direction and solutions are in place for managers to mitigate this risk, but the core issue remains, and it is, without doubt, and along with regulatory clarity, the most significant challenge in the industry.
What are the three key pieces of advice you would give clients in the current environment?
Do your homework. Look for managers that are transparent and pay the required attention to due diligence and risk management. Diversify your investments and find managers that have little correlation to any asset class. Don’t be blind by astronomical yields, always look for sustainable performances and suitable drawdowns.
Jaime Baeza, co-founder and CEO, ANB Investments – Jaime Baeza is the co-founder and CEO of ANB Investments – a Miami-based digital assets hedge fund. An ex-institutional trader at Credit Suisse, Jaime has 16 years’ experience in traditional finance and Crypto.
