Michael Bodley

The SEC’s recently ratcheted-up regulations on private funds have the asset managers running crypto versions of those vehicles parsing the potential fallout.



New <a href="https://www.sec.gov/files/rules/final/2023/ia-6383.pdf">rules</a>, which took effect last week, apply to hedge, private equity and certain venture capital funds.&nbsp;



Among the core changes that will go into effect after 60 days: quarterly statements, as well as annual fund-level audits, plus additional mandated disclosures on fees for the benefit of investors.&nbsp;



Hanging in the air, though, industry participants say, has been no small measure of relief — considering the US securities’ overseer did not appear to have taken a more draconian route with its regulations, generally considered the largest rule-making overhaul on the books since the Dodd-Frank Act of 2010. The private funds industry has an estimated $17 trillion under management.&nbsp;



The agency, led by Chair Gary Gensler, notably did not pass a version of the regulations that would have made it substantially more straightforward for investors to sue asset managers for a range of investment breaches big or small. That measure, which was floated in earlier versions of the new regulations, would have opened up top asset managers to litigation to a deep degree.



Adam Guren, the co-founder of Hunting Hill Digital, told Blockworks that the new requirements are not all that onerous for firms that have already been above the board — and paying attention to the rule-making process as it has played out since earlier this year.&nbsp;



“I think, relative to what we’ve seen with proposals, what we’ve seen in previous drafts of this, it&#8217;s lighter than what we were expecting,” Guren said.&nbsp;



Guren, who is also chief investment officer of Hunting Hill Global Capital, said that “discussions around expenses” were gearing up “to be a pretty hot topic.” Top fund managers have often turned to what’s known as a pass-through fee structure, essentially getting limited partners to sign onto a fee system that helps the manager cover technology, trading and the like.



The <a href="https://blockworks.co/tag/sec">SEC’s</a> new rules did not ban that practice, though they claimed fund managers will have their firms’ fees more closely scrutinized, to go along with the fund-level annual audit requirement.&nbsp;



That said, the rules are set to “materially increase costs,” Guren said, especially for managers on the smaller side that may be in a worse position to weather those increases.



“It’s difficult for innovation, and small managers that are trying to grow — especially in digital assets there&#8217;s a disproportionate amount of small managers in crypto, rather than traditional hedge funds,” he said.&nbsp;



<h2 class="wp-block-heading">Gensler protecting investors ‘big or small’</h2>



SEC Commission Hester Peirce, who has pro-crypto leanings, <a href="https://www.sec.gov/news/statement/peirce-statement-doc-registered-investment-adviser-compliance-reviews-08232023">said</a> in prepared remarks August 23 that the new rules would harm the negotiating ability of sophisticated deep-pocketed investors, essentially leading to them paying more for the same investment prowess, the same returns.



They will “impose a retail-like framework on this very institutional marketplace,” she said, adding that the shift is primed to impose “a prescriptive regime that edges out mutually agreed upon ground rules for private funds.”



The gist of the new rules appear designed to level the playing field for investors. The old-adage SEC wisdom used to be that institutional investors could hold their own in negotiating checks written to hedge fund managers — and had the money to risk in doing so that few other investors had.&nbsp;



“By enhancing advisers’ transparency and integrity, we will help promote greater competition and thereby efficiency” Gensler said in a <a href="https://www.sec.gov/news/press-release/2023-155">statement</a>. “Consistent with our mission and Congressional mandate, we advance today’s rules on behalf of all investors — big or small, institutional or retail, sophisticated or not.”



Gensler has emphasized the connection between institutional limited partners and the retail investors who are tied to their pension plans and endowment products, for instance.



<h2 class="wp-block-heading">Side letters becoming transparent</h2>



The SEC is taking out asset manager side letters in their previous form —&nbsp;blocking the practice of offering one limited partner preferential treatment without opening up the option to all investors.&nbsp;



Side letters are typically how the largest investors, who are willing to contribute the largest sums to a fund, are able to drive down their own management or performance fees, while other investors are left pulling the full freight.&nbsp;



“We already disclose that we have them,” Guren said. “So, it’s not a surprise to any of our investors that they’re around. We have a few of them with our largest investors, and they predominantly focus on the most-favored terms…If an investor said, ‘Hey, look, I see that large anchor investors have these preferential treatments. We would like them.’ We say, ‘Great, you can have them if you invest at the same size.’”&nbsp;



By that same token of offering the same investors the same opportunity set, the regulation requires managers to ensure they’re offering equal liquidity provisions, on a time-weighted basis, to limited partners. That could come especially into play with less-liquid private equity firms that allow larger investors to liquidate part of their holdings ahead of the fund’s schedule.&nbsp;



Bryan Corbett, the president and chief executive of the Managed Funds Association, said in a <a href="https://www.managedfunds.org/statement/mfa-statement-on-secs-adoption-of-final-private-fund-adviser-rule/">statement</a> that the “final rule will increase costs, undermine competition, and reduce investment opportunities for pensions, foundations, and endowments.” The Managed Funds Association (MFA) is a trade group and lobbyist for the alternative investments industry.&nbsp;



On the auditing front, Guren said that Hunting Hill Digital ought to be in a mostly unchanged position, given it’s one of a handful of crypto funds that is audited by EY, one of the Big 4 accounting firms. Others, sometimes for expense reasons, tend to favor auditors lesser-known on Wall Street or with the SEC.



For smaller firms, “there is no question that it’s more challenging,” Guren said. DeFi-heavy strategies may have to unwind, then rebuild, their books each quarter to comply with the position disclosures and valuations, he said.&nbsp;



“If you&#8217;re running a strategy that may be on multiple or dozens of exchanges, it creates more complexity,” he said. &#8220;It creates more difficulties for a staff to put together a quarterly statement, to build a book, then unwind it every quarter just for a statement — doesn’t seem like a reasonable thing to do.&#8221;



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Small crypto managers ‘trying to grow’ could bear brunt of latest SEC rules

The operators of crypto hedge fund firms have found themselves in a conundrum: Returns have been up, but capital-raising has been down.



Numerous portfolio managers overseeing digital asset strategies have seen improved performance. This is especially notable for those focusing on multi-strategy and yield-bearing approaches. This uptick comes as we approach the anniversary of Q4 2022.



In a research report focusing on crypto hedge funds through the first half of 2023, 21e6 Capital of Switzerland found that directional funds underperformed <a href="https://blockworks.co/price/btc">bitcoin</a> as the asset took off in the first half of the year. Quantitative strategies and futures-focused approaches also lagged crypto’s largest player, which soared about 84% from January through June.



<a href="https://blockworks.co/news/coinshares-pushing-into-active-management">But there have been signs of life when it comes to new launches.&nbsp;</a>



Most funds were in the green, but the green wasn’t good enough to attract capital, in many cases, according to 21e6 Capital. 



“In our regular conversations with crypto funds, we sense that the market sentiment among their LPs/investors is still lower than would be expected after a positive start to the year,” the firm writes in its August report. “Many funds certainly lagged the market and now have a harder time presenting a value proposition to their prospective investors.”



In the fourth quarter of 2022, institutional investors with traditional finance ties had been ramping up their due diligence as the bull market continued to build, before it ground to an abrupt halt as <a href="https://blockworks.co/tag/ftx">FTX</a> imploded. 



A good number of those Wall Street types, according to industry participants, pumped the brakes on the checks they had been planning to write. And some have continued to stay on the sidelines, driven, at least in part, by regulatory uncertainty that continues to cloud the sector’s US outlook.&nbsp;



Crypto-native funds have mostly stayed the course – even if some players have moved more substantially into cash than they typically would. Meanwhile, digital asset markets saw a decline in July, retracting a portion of their gains from the first half of the year.



<a href="https://blockworks.co/tag/prochain-capital">ProChain Capital</a> is a multi-strategy crypto fund that invests in spot cryptocurrencies, equity and debt associated with digital assets, and venture investments. According to a tear sheet shared with existing and potential investors, the fund reported a 42.21% increase through the end of July.



ProChain, run by its president, David Tawil, dipped 3.2% in July as the fund looks to recover from a 65.15% plunge in 2022, its first full-year negative result.&nbsp;



In an accompanying note to investors, Tawil wrote that the recent Ripple decision that played out in a federal district court was the “biggest crypto-related development of the last few weeks.”&nbsp;



“The SEC’s stance that all crypto assets, except for Bitcoin, are securities was definitely undermined,” Tawil said, going on to note a number of outstanding issues at play in the case, and issues outstanding in the US regulatory landscape more broadly.



<h2 class="wp-block-heading">Hedge funds become buyers</h2>



Hedge fund managers have staked out broader investment mandates in an effort to capitalize on a number of ongoing dislocation opportunities in crypto markets. Last year marked the rise of specialist institutional funds, strategies that bet it all on their investment team’s ability to derive alpha from a particular sector. Yield-farming approaches came into vogue, and a number of asset managers trading nothing but crypto derivatives gained steam.



Faced with smaller capital reserves, as well as more limited opportunities in asset terms to deploy funds in a bear market, traders have been branching out.&nbsp;



Ramped-up buying and selling on Curve DAO (<a href="https://blockworks.co/price/crv">CRV</a>) in the last couple of weeks has marked a key example. The result, according to multiple research reports, has been a sudden spike in liquidity on the <a href="https://blockworks.co/category/defi">DeFi</a> protocol.&nbsp;



Read more: <a href="https://blockworks.co/news/crypto-hedge-funds-prediction">Crypto hedge funds expect digital assets will be up by the end of the year</a>



David Lawant, the head of research for crypto prime brokerage <a href="https://blockworks.co/tag/falconx">FalconX</a>, wrote in a research report on Tuesday that the firm saw “strong activity in CRV from hedge funds, with buy and sell volumes almost evenly distributed.” 



The week prior, FalconX researchers highlighted a trading trend — namely that, “hedge funds and retail aggregators [have been] better buyers while venture funds and institutional wealth managers as better sellers.”&nbsp;



Persistent buys of digital assets, as well as derivatives, by crypto hedge fund managers may reflect a conviction that the market’s bottom is in — or, at least, has been priced in. The buying trend marked a market uptick from July, according to FalconX data, when hedge funds were deemed better sellers, representing 53% of total flows.



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Crypto hedge funds have rallied in 2023, but can they catch up with bitcoin?

Shalini Nagarajan

A majority of crypto-native hedge funds expect higher market capitalizations for digital assets by the end of 2023 compared to 2022, according to a PwC study released Thursday.



Bitcoin has demonstrated an upward trend since the end of last year, with an 85% year-to-date rally alongside recoveries in global equity indexes. The <a href="https://www.coingecko.com/en/global-charts" target="_blank" rel="noreferrer noopener">total</a> crypto capitalization has jumped 50% in that time, from $828 million to $1.25 trillion, with bitcoin making up about half.



“Despite market volatility, a fall in digital asset prices and the collapse of a number of crypto businesses, investment in crypto assets is expected to remain strong in 2023,” John Garvey, global financial services leader at PwC US, said in the <a href="https://www.pwc.com/gx/en/news-room/press-releases/2023/pwc-2023-global-crypto-hedge-fund-report.html" target="_blank" rel="noreferrer noopener">report</a>.



The study separately found the percentage of traditional hedge funds investing in crypto assets declined from 37% last year to 29%, as the crypto landscape <a href="https://blockworks.co/news/jay-clayton-doesnt-like-regulation-by-enforcement" target="_blank" rel="noreferrer noopener">grappled with regulatory strife</a> in the US.



Still, those hedge funds already invested in crypto assets intend to uphold or even increase their exposure, regardless of market volatility and regulatory challenges, it noted.



The report utilized data from two separate surveys, one involving 131 crypto-native hedge funds and the other gathering information from 59 traditional hedge funds.



<h2 class="wp-block-heading">Traditional funds more interested in tokenization than crypto-natives</h2>



Traditional hedge funds showed more interest in <a href="https://blockworks.co/news/2023-year-of-asset-tokenization" target="_blank" rel="noreferrer noopener">blockchain-powered assets and securities</a>, with around 25% exploring tokenization.&nbsp;



However, unlike last year when one in five traditional hedge funds invested in non-fungible tokens (NFTs), no hedge funds reported NFT investments this time.



Among the crypto hedge funds surveyed, <a href="https://blockworks.co/news/crypto-hedge-fund-launching-market-neutral-strategy-to-meet-investor-demand-sources-say" target="_blank" rel="noreferrer noopener">market neutral strategies</a>, designed to generate profits irrespective of market direction, remained the preferred choice.



Meanwhile, the usage of discretionary long-only strategies rose from 14% in the last survey to 19%, while more quantitative long-and-short styles fell from 25% to 18%.



In terms of response to regulatory enforcement, 12% of crypto hedge funds were found contemplating a shift from the US to jurisdictions that offer a more favorable environment for crypto.



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Crypto hedge funds expect digital assets will be up by the end of the year

Longtime TradFi hedge fund operator Hunting Hill Global Capital is doubling down on cryptocurrency trading — &nbsp;which has not been common knowledge on The Street —&nbsp;according to three sources familiar with the matter.&nbsp;



The New York firm is closing in on a number of key hires for just that, sources said: at least two former Genesis executives, plus at least one senior addition out of Galaxy Digital.&nbsp;



There’s no shortage of interest in the ebbs and flows of talent from Genesis, the <a href="https://blockworks.co/news/genesis-halts-lending" target="_blank" rel="noreferrer noopener">struggling</a> crypto lender and trader, in the toughest job market in recent memory. Employers and jobseekers have been stung by plummeting payrolls. For the few with dry powder, though, there’s an upside: Talent exceeds openings. 



Hunting Hill tapped Martin Garcia, who spent more than half a dozen years at Genesis, as chief investment officer for its emerging crypto-only affiliate, Hunting Hill Digital, sources said. Garcia, in charge of the unit’s hiring, is evidently looking to use that job market to his advantage.&nbsp;



Garcia had been biding his time since August 2021, when he left Genesis as one of its longest-tenured staffers. He’s been recently building out the “plumbing and piping and infrastructure,” a source said.



Garcia has teamed up with Adam Gueren, founder and chief investment officer of Hunting Hill proper. Guren is taking on the role of chief executive for Hunting Hill Digital in one indicator of his conviction in digital assets. Another Hunting Hill trader, Adam Genello, is set to join the new fund as a portfolio manager.



<h3 class="wp-block-heading">Crypto has tanked. It may still be tanking. Why launch now?</h3>



The rationale, sources said, for putting the fund in play sooner rather than later? Mammoth market dislocations brought into being by the collapses of some of crypto’s largest players.&nbsp;



“The market has been going kind of crazy, and [Garcia and Guren] didn’t really see the right opportunity” until recently, a source said.&nbsp;



Hunting Hill, as it turns out, has been in crypto since February 2020, via the launch of Hunting Hill Crypto Opportunities Fund — long before scores of Wall Street peers followed suit. While its performance since isn’t known, two sources said results have been above average, adding that Guren wouldn’t otherwise greenlight another fund.&nbsp;



The firm declined to comment. Sources were granted anonymity to discuss sensitive business dealings.&nbsp;



<h3 class="wp-block-heading">An effort to mesh TradFi, crypto investing tactics</h3>



Hunting Hill has, since its 2010 inception, expanded its core arbitrage mandate to include additional strategies, one source said. Digital assets are now up. It ran $718 million of gross assets at the end of 2021.&nbsp;



That evolution plays into the narrative of the multi-strategy fund operators increasingly cornering the market for limited partner dollars. A number have delivered standout showings throughout 2022’s frothy stock, bond and commodity markets.



And a few such hedge fund <a href="https://www.thestreet.com/crypto/bitcoin/hedge-fund-millennium-traded-gbtc" target="_blank" rel="noreferrer noopener">behemoths</a>, including <a href="https://blockworks.co/news/steve-cohen-building-out-crypto-investment-firm" target="_blank" rel="noreferrer noopener">Steve Cohen’s</a> Point72, have, like Hunting Hill, taken the crypto <a href="https://blockworks.co/news/point72-asset-management-in-early-innings-of-big-crypto-push" target="_blank" rel="noreferrer noopener">plunge</a>.



The open-ended Hunting Hill Crypto Opportunities Fund now has about $50 million in assets under management, the source said.&nbsp;



The yet-to-be-named new entity has its launch penciled-in for the end of first quarter or beginning of the second. It’s too early to get a pulse on capital-raising aspirations, two sources said, but conversations with would-be backers are already in play.&nbsp;



Garcia and Guren are vying to mesh the “traditional team at Hunting Hill and more crypto-native folks, as well,” one source said. To that end, Garcia before Genesis spent time at illiquid asset specialist SecondMarket.&nbsp;



The firm typically trades bonds, derivatives, ETFs and equities. Its in-house products tend to pay off when markets chop and churn — likewise the bar for its crypto dealings.&nbsp;



The specifics of Hunting Hill Digital’s strategies aren’t settled. But it’s not going to be a quant shop, one source said. That said, it could look to acquire a crypto quant specialist at some point — part of a diversification push.



At the moment, there’s all but untold alpha to be derived from crypto’s many corners by savvy traders armed with opportunistic strategies. And there’s real promise in buying into beaten-up spot assets and startup stakes in a recovery wager.&nbsp;



Still, Hunting Hill has quite the tricky fundraising road ahead, one source said. The largest of limited partners — the likes of top family offices, pensions and endowments — had been engaged in serious due diligence on crypto portfolio managers in the bull market.&nbsp;



Scores have since backed out or put those prospects on the back burner.&nbsp;



“It’s an interesting launch,” the source said. “But they’re looking at this as a four- or five-year play.”



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Ex-Genesis, Galaxy Execs Said To Helm Hedge Fund Hunting Hill’s Crypto Play

<div id="highlights-block_63185147d614a" class="highlights">
 <ul>
 <li>Matrixport is a British Virgin Islands registered cryptoasset financial services provider</li>
 <li>Three Arrows Capital owed $3.5 billion to 27 crypto companies at the time of its bankruptcy</li>
 </ul>
 
</div>



Cryptocurrency hedge fund <a href="https://cms.blockworks.co/tag/3ac/" target="_blank" rel="noreferrer noopener">Three Arrows Capital</a> (3AC) declared <a href="https://cms.blockworks.co/3ac-files-for-bankruptcy-as-co-founders-location-unknown/" target="_blank" rel="noreferrer noopener">bankruptcy</a> two months ago, so it was eyebrow-raising when on-chain analytics firms reported Tuesday it was still executing relatively hefty transactions. Those initial reports turn out to be wrong.



On-chain data showed a <a href="https://etherscan.io/address/0x23237b849d0e6f392573ee6ae9e3b1256f058143" target="_blank" rel="noreferrer noopener">wallet</a> identified by on-chain analytics firm Nansen as belonging to 3AC withdrew a total of $45 million from deposits previously staked on Curve Finance and Convex Finance.&nbsp;



More specifically, the wallet removed about 20,945 staked ether ($33.3 million) from Curve. From Convex, it retrieved 2,421 wrapped ether ($4 million), 202.7 wrapped bitcoin ($4 million) and 4 million USDT, according to data from security firm PeckShield.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true"><a href="https://twitter.com/hashtag/PeckShieldAlert?src=hash&amp;ref_src=twsrc%5Etfw">#PeckShieldAlert</a> The address labeled as 3AC withdrew ~20,945 <a href="https://twitter.com/search?q=%24stETH&amp;src=ctag&amp;ref_src=twsrc%5Etfw">$stETH</a> (~$33.3M) from Curve Finance and ~2,421 <a href="https://twitter.com/search?q=%24WETH&amp;src=ctag&amp;ref_src=twsrc%5Etfw">$WETH</a> (~$4M), ~ 202.7 <a href="https://twitter.com/search?q=%24WBTC&amp;src=ctag&amp;ref_src=twsrc%5Etfw">$WBTC</a> (~$4M) and ~4M <a href="https://twitter.com/search?q=%24USDT&amp;src=ctag&amp;ref_src=twsrc%5Etfw">$USDT</a> from Convex Finance. <a href="https://t.co/8R3J0IFtP1">https://t.co/8R3J0IFtP1</a> <a href="https://t.co/WSZI1iR05X">pic.twitter.com/WSZI1iR05X</a>&mdash; PeckShieldAlert (@PeckShieldAlert) <a href="https://twitter.com/PeckShieldAlert/status/1567179464370712577?ref_src=twsrc%5Etfw">September 6, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



The labeling of 3AC’s wallet by Nansen did not make it a certainty. In response to skepticism over the firm’s labelling in the past, Nansen CEO Alex Svanevik remarked in June, “we can (but rarely) make mistakes — no-one is perfect.”



Blockworks contacted Nansen to gauge the reliability of the labeling in this case and learned this was one of those times. According to a Nansen spokesperson:



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">&#8220;This wallet was labelled Three Arrows Capital (3AC) due to it receiving large amounts of crypto from another known 3AC wallet. After investigating further, we’ve confirmed it was a 3AC counterparty managing this wallet: Matrixport. We’ve updated the label to reflect this.&#8221;</blockquote>



Matrixport is a financial services platform for cryptoassets that includes trading, borrowing and lending, and staking products.



The purpose behind Tuesday’s withdrawals isn’t clear, but <a href="https://www.matrixport.com/about" target="_blank" rel="noreferrer noopener">the company</a> did confirm the wallet is theirs.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">&#8220;The Matrixport wallet activity is part of our routine operations and not related to 3AC,&#8221; Ross Gan, head of public relations told Blockworks.</blockquote>



One reason behind the move may be that stETH holders will be unable to redeem their tokens for ether until <a href="https://twitter.com/lidofinance/status/1536756940419784704?lang=en" target="_blank" rel="noreferrer noopener">at least six months</a> after the Merge, which is slated for <a href="https://cms.blockworks.co/ethereum-merge-countdown-at-t-20-days/" target="_blank" rel="noreferrer noopener">Sept. 15</a>.



A Twitter speculator <a href="https://twitter.com/jadid/status/1567163416795844616" target="_blank" rel="noreferrer noopener">suggested</a> that the withdrawal move shows big wallet holders plan to liquidate their ether in the period of heightened focus on Ethereum around the Merge. Crypto markets are broadly down, but ether has shown strength relative to bitcoin, remaining in a daily uptrend since Aug. 29.



3AC owed 27 crypto companies <a href="https://cms.blockworks.co/3ac-co-founders-used-funds-assets-for-50m-yacht-bungalows/" target="_blank" rel="noreferrer noopener">$3.5 billion</a> at the time of its bankruptcy, with its biggest creditor being crypto brokerage Genesis. Founders Su Zhu and Kyle Davies have mostly laid low in the months following their fund’s collapse, allegedly refusing to cooperate with the <a href="https://cms.blockworks.co/three-arrows-capital-ordered-into-liquidation-by-bvi-court-report/" target="_blank" rel="noreferrer noopener">court-appointed liquidator</a> Teneo that’s overseeing its liquidation.&nbsp;



Blockworks had reached out to restructuring firm Teneo, who declined to comment on the alleged withdrawals, saying that the restructuring firm is focused on advancing the liquidation process “in order to maximize asset recoveries on behalf of all creditors.”



“During this time, it would be inappropriate to comment on speculation surrounding transactions that may or may not relate to Three Arrows or the investigations that are underway,” a spokesperson told Blockworks.



3AC didn’t return a request for comment by press time.



This story was updated on Sept. 7 at 9:15 am ET with new information about the funds&#8217; origin, and on Sept. 8 at 3:12 am ET with comment from Matrixport.



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Withdrawal of $45M from Curve Finance, Convex, Was Not From 3AC, Nansen Says

<div id="highlights-block_6291134ae2622" class="highlights">
 <ul>
 <li>The startup is run by the latest Wall Streeter to find success personally investing in crypto, before giving their own fund a shot</li>
 <li>The firm plans to kick off its fundraising efforts at a crypto conference in Miami next week </li>
 </ul>
 
</div>



A veteran stock-picker is the latest traditional financier to give crypto a try. 



Duncan Simmons, who previously spent time at equity-focused Wall Street stalwarts Coatue Management and Iridian Asset Management, is entering capital-raising mode for his Aqxa Research, the founder and CEO told Blockworks exclusively.



Simmons’ first stop: the iConnections <a href="https://iconnections.io/" target="_blank" rel="noreferrer noopener">Digital Assets Forum</a> in Miami next week, where institutional investors angling for crypto exposures will mingle with up-and-coming managers. The plan is to commence trading the new vehicle sometime this summer.



<div class="wp-block-image"><figure class="alignright size-medium"><img loading="lazy" decoding="async" width="300" height="260" src="https://blockworks-co.imgix.net/wp-content/uploads/2022/05/Headshot2-IMG_8418-300x260.jpg" alt="Aqxa Duncan Simmons" class="wp-image-22123" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2022/05/Headshot2-IMG_8418-300x260.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2022/05/Headshot2-IMG_8418-300x260.jpg?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2022/05/Headshot2-IMG_8418-300x260.jpg?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2022/05/Headshot2-IMG_8418-300x260.jpg?w=1536 1536w, https://blockworks-co.imgix.net/wp-content/uploads/2022/05/Headshot2-IMG_8418-300x260.jpg?w=2048 2048w, https://blockworks-co.imgix.net/wp-content/uploads/2022/05/Headshot2-IMG_8418-300x260.jpg?w=297 297w, https://blockworks-co.imgix.net/wp-content/uploads/2022/05/Headshot2-IMG_8418-300x260.jpg?w=301 301w, https://blockworks-co.imgix.net/wp-content/uploads/2022/05/Headshot2-IMG_8418-300x260.jpg?w=253 253w, https://blockworks-co.imgix.net/wp-content/uploads/2022/05/Headshot2-IMG_8418-300x260.jpg?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2022/05/Headshot2-IMG_8418-300x260.jpg?w=50 50w" sizes="auto, (max-width: 300px) 100vw, 300px" /><figcaption>Aqxa&#8217;s Duncan Simmons | Source: Aqxa</figcaption></figure></div>



While Simmons’ fundraising aspirations are unknown, he’s already assembled a staff of five professionals with crypto experience — likely a bellwether of a substantial amount of day-one capital. The portfolio manager is in the process of finalizing service providers; he’s selected Goldman Sachs vet <a href="https://cms.blockworks.co/meraki-global-advisors-an-early-entrant-to-crypto/" target="_blank" rel="noreferrer noopener">Ben Arnold’s Meraki Global Advisors</a> to handle outsourced crypto trading.



<a href="https://www.aqxa.io" target="_blank" rel="noreferrer noopener">Aqxa</a> is fine-tuning a research-intensive approach to probing digital asset markets for alpha. 



The approach involves a two-tiered org chart consisting of analysts — who establish macro themes and “what the question is” — as well as so-called “community researchers,” initially a global network of contractors tasked with conducting research on the likes of Discord, Telegram, Twitter and, of course, by learning the nooks and crannies of the protocols themselves.&nbsp;



The firm also plans to invest in early-stage tokens and is testing an on-chain analysis procedure that taps quantitative algorithms to determine asset weighting, based on volatility, trading volumes and related factors. Analysts with quant experience are tasked with rating either long or short bets on a one to five conviction scale, which feeds into how much of Aqxa’s overall book each position accounts for.



Higher-conviction, more surefire wagers, however, may be downgraded below more dubious prospects, depending on market conditions.&nbsp;



Pulling the trigger on investments is done manually — not using algorithms — via Simmons’ bread and butter: discretionary, fundamental trades.&nbsp;



Those investments, primarily, are made up of long and short plays in some of the most liquid cryptocurrencies — as well as dabbling in decentralized finance (DeFi). Simmons is also considering adding private venture capital- or private equity-style opportunities to the vehicle’s investment mix down the line.&nbsp;



Simmons, who started investing personally in bitcoin in 2017, “floated the idea” of starting up a crypto trading business at a previous firm, but compliance and other back-office functions, as well as risk controls and tolerance, nixed the venture before it got off the ground.&nbsp;



“I’m adopting the value-add research model that I was trained on,” he said. “It takes using deep, fundamental research, [as well as] engaging with management teams, developers, users and other stakeholders — actually using products ourselves, as well as doing the strategic analysis of how various projects fit into the ecosystem.”



<hr class="wp-block-separator has-alpha-channel-opacity"/>



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<ul class="wp-block-list">
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<li><a href="https://blockworks.co/newsletter/empire">Empire</a>: Start your morning with the top news and analysis to inform your day in crypto.</li>



<li><a href="https://blockworks.co/newsletter/forwardguidance">Forward Guidance</a>: Reporting and analysis on the growing intersection of crypto and macroeconomics, policy and finance.</li>



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<li><a href="https://blockworks.co/newsletter/lightspeed">Lightspeed</a>: Built for Solana investors, developers and community members. The latest from one of crypto&#8217;s hottest networks.</li>



<li><a href="https://blockworks.co/newsletter/thedrop">The Drop</a>: For crypto collectors and traders, covering apps, games, memes and more.</li>



<li><a href="https://blockworks.co/newsletter/supplyshock">Supply Shock</a>: Tracking Bitcoin’s rise from internet plaything worth less than a penny to global phenomenon disrupting money as we know it.</li>
</ul>