Forteus says ‘less competition’ is good for traders

Institutional crypto asset manager Forteus has launched its first two funds, rolling out a long-only and multi-manager vehicle.

Those strategies represent bets on both digital assets bouncing back and the prowess of outside managers to navigate choppy markets.

The London-headquartered Forteus has locked down some $50 million of investor capital and commenced trading its first commingled vehicles on June 1, according to a source familiar with the matter and investor communications obtained by Blockworks.

For the London-headquartered Forteus, a subsidiary of the Numeus Group, the commingled vehicles have evidently been in the works for some time — taking into account the fact that the firm in July 2022 sold an undisclosed minority stake to the $746 billion asset manager Schroders.

A spokesperson for Forteus declined to comment, citing private placement regulations on institutional funds. The firm also publishes research, including dives into the dealings of other crypto hedge funds.

In a recent investor letter, Numeus detailed its multi-manager strategy, Forteus Multi-Manager Alpha Fund (MMA), touting “less competition” in markets for traders, given “several players” having “closed shop or ceased their crypto activities.”

Forteus said the “significant market rotations” last month indicated “encouraging stronger levels of activity,” which the firm said it had “not observed since the FTX collapse back in November 2022.”

The investment play and associated opportunity set, as outlined by Forteus President Nicolas Vanhoutteghem and his team in the letter, harkens back to “the early days of hedge funds” when a “diversified multi-manager approach” offered the “most effective gateway for investors.”

Vanhoutteghem previously worked for Bain & Company, among a number of other firms.

The fund backs managers who run market-neutral strategies and highlighted statistical arbitrage strategies as a top performer in June, when MMA gained 0.7% in its first month of trading through a “market that was rocked by regulatory uncertainty and that saw significant regime shifts.”

Thomas Chladek, its head of external manager research and selection, previously spent 11 years working in the funds-of-funds unit for Lombard Odier’s Geneva office. An additional in-house team contributes to the fund’s operations.

The vehicle through June had deployed about 40% of its capital to five undisclosed portfolio managers, the letter said. Chladek and his team backed an additional two managers on July 1, bumping up that figure to 50% — a move that suggests relatively conservative check sizes, given available assets.

“Emergence of new arbitrage strategies”

Forteus has been shopping around its second vehicle, a long-only strategy focused on mostly established tokens with ample market liquidity. But the firm is also pursuing emerging tokens that could deliver more outsized upside.

Additional details about that still-developing strategy weren’t immediately clear. But it appeared to fit into Numeus’ broader plans to diversify the offerings pitched to prospective limited partners under the direction of Nobel Gulati, the former chief executive of Two Sigma Advisers.

Ryan Ebner, who previously worked as an analyst for Schroders, has been tapped as the portfolio manager for the long-only fund, dubbed Digital Asset Select.

The firm acknowledged in its letter that “the last year has been unequivocally challenging for crypto managers,” taking into account “the fallout from the events of 2022,” which have “tested market neutral and trading oriented managers across several dimensions.”

Gideon Berger, a former co-chief investment officer for Blackstone’s alternative investments unit and Forteus’ non-executive chair, told Blockworks in a statement that “digital assets are creating a wide set of investment opportunities, from innovative early-stage applications to a broad range of trading strategies in inefficient and fragmented markets.”

The state of cryptocurrency markets “in many ways” reminds Berger of “the early days of the hedge fund industry,” he said.

Updated July 14, 2023 at 10:09 am ET: Clarifies Chladek’s title, as well as Vanhoutteghem’s work experience.

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