At Cryptochain Capital we have developed a vetting formula we utilise when analysing potential cryptocurrency hedge funds to deploy capital to. Our formula is broken down into 3 key components being Performance, Investment Procedures, and Operational Procedures.
We don’t necessary rate any component more than another, rather we are attracted to crypto hedge funds that are competent across all areas.
There are two important factors we consider when looking at the performance of a crypto hedge fund.
Return on Investment – This is the actual return the crypto hedge fund has delivered over a period of time
Timeframe fund has been in existence – this is important as we’re attracted to cryptocurrency fund that have a proven long term strategy
There are four important factors we consider when looking at the Investment procedures of a cryptocurrency fund.
Traditional money management expertise – Do the founders and key staff have experience in managing funds on behalf of investors. Usually we’re looking for hedge fund managers that have come from traditional asset classes. This demonstrates they have the experience around how to deliver returns to investors
Well designed and articulated strategies in place – What is their investment strategy and how has it been executed to date. Does the investment strategy fit in with the long term goals of the Cryptochain Capital portfolio.
Performance through up and down cycles – this is particularly important to us as any crypto hedge fund can perform well during bull markets but how do they perform during bear markets. Our goal is to try and limit months of negative return through a balanced portfolio of hedge funds while taking advantage of the bull months.
Risk management practices – during bearish months or dips in the crypto market how does the crypto hedge fund strategy manage downside risk.
There are three important factors we take into account when reviewing a cryptocurrency fund operational procedures.
Security and custodial practices – This is a massive factor into our decision. Does the cryptocurrency hedge fund have excellent procedures in place to protect and secure their cryptocurrency assets. We must be convinced they can securely store our capital which usually involves a dedicated team member who is specialised in this area and then full procedures around accessing and transferring currency.
Leading teams in place: Auditor, Administrator, Legal, Custodial – Do they have the correct expert 3rd parties involved to operate the fund as per regulatory guidelines. Flags are raised if the cryptocurrency hedge fund is allocating the correct resources to handle administrative items correctly.
Vetted management team – Who is the management team and what is the background in relation to the companies they have worked at, their roles and what they have achieved. How do they come across to us when we speak to them on investor and teleconference calls. Also, via back channels we seek opinions from other people who have had dealings with them or their fund.
If we’re satisfied the cryptocurrency hedge fund meets our vetting formula and their investment strategy is within the overall strategy then they are likely a good fit for our portfolio.