Michael Bodley

A private equity professional, helming a new crypto <a href="https://blockworks.co/news/sovereign-wealth-fund-vet-eyes-150m-for-crypto-fund-of-funds" target="_blank" rel="noreferrer noopener">fund of funds</a>, appears to be gaining fundraising traction as investors hunt for opportunistic strategies primed for uncommonly volatile markets, according to three sources familiar with the matter.



Managing Partner Joshua Manasseh previously spent more than six years at private equity firm Ardian. Manasseh’s London-based Arbury Advisors plans to launch in the first quarter of 2023.



It’s unclear how much capital Arbury intends to raise, but sources said the fund of funds has landed the family office of an unidentified major private equity player as an anchor investor.&nbsp;



Manasseh tapped crypto veteran Joseph Cox as head of research. The New York-based Cox, formerly chief operating officer of a $100 million-plus asset manager, is tasked with bridging the US and Europe and assisting in capital deployment, as well as due diligence.&nbsp;



Following <a href="https://blockworks.co/news/the-last-10-days-in-the-ftx-saga-a-timeline" target="_blank" rel="noreferrer noopener">FTX’s blowup</a>, scores of blue-chip traders lost billions of dollars in days. The downturn, though, has triggered an impetus among limited partners to back opportunistic-minded investors — including long-biased, long-only and distressed strategies — in a bid to “buy the dip at scale,” one source said.&nbsp;



Contrary to the industry line, sources said it may be a good time to launch. One said it’s “refreshing” for Arbury to not have to buy into the bull market. Even so, it’s no simple task to ink commitments from investors who actually have dry powder left and have not been dissuaded from the market’s plunge.&nbsp;



Due diligence and risk are now paramount.



“Alpha is not that hard to come by when markets pick up, but it’s really the operational and risk [due diligence] that makes the difference,” one source said.



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



But raising capital is continuing apace — with one source saying things seem to be “falling into place” after Arbury secured its private equity anchor. In the swiftly-changing asset class, limited partners who are less savvy on crypto due diligence take cues from more grizzled peers.&nbsp;



<h3 class="wp-block-heading">The Arbury pitch</h3>



The company is slated to deploy to 10 to 15 funds, both illiquid venture — including buyers of early stage, private token sales and debt, as well as pure-play equity — and liquid hedge structures, such as market-neutral.



The private equity-style, close-ended vehicle plans to deploy capital over a two-year period. Manasseh plans to write larger checks to established traders under the aim of allocating about 25% of his book every six months.



There’s an optional fund extension at the discretion of its backers. And performance fees only come into play after investors receive a 1.5x multiple and an 8% net internal rate of return, or hurdle.&nbsp;



Manasseh previously worked on the investment team at Ardian — which now has more than $140 billion in assets under management — and played a role in more than $8 billion of secondary fund of funds transactions. Cox is also an adviser to GoQuant.&nbsp;



There’s an emphasis on risk and diversification, including writing smaller checks to emerging traders, while reserving capacity to ramp up over time, as proven by performance.



The startup has also been working to negotiate discounted fees from the vehicles it’s considering backing. Lowered fees are “especially attractive” to would-be investors given market conditions and uncertainty, one source said.



On the due diligence front, Arbury has tapped Quentin Thom and James Newman’s perfORM. That operation, also based in London, has been capturing a <a href="https://blockworks.co/news/crypto-due-diligence-startup-vying-to-bring-transparency-to-opaque-industry" target="_blank" rel="noreferrer noopener">growing slice</a> of the market for deep dives on both digital asset investment firms and their service providers.&nbsp;&nbsp;



Manasseh has already deployed proprietary capital to at least one unidentified manager, which could be backed, in turn, by the fund of funds. And Thom and Newman are now assisting with due diligence on an up-and-coming pipeline of potential managers. The firm plans to predominantly employ a traditional <a href="https://blockworks.co/news/sources-fidelity-vet-launching-crypto-fund-of-funds" target="_blank" rel="noreferrer noopener">fund of funds model</a>, though Manasseh and Cox would selectively consider separately managed accounts.



Arbury has also inked a partnership with <a href="https://blockworks.co/news/ex-wall-street-execs-secure-funding-for-young-crypto-firm" target="_blank" rel="noreferrer noopener">Cloudwall </a>— a risk management startup founded by one-time Morgan Stanley executives — which facilitates “stress-tests” of portfolios against live and historical blockchain data.



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New Crypto Fund of Funds May ‘Buy the Dip at Scale,’ Sources Say

<div id="highlights-block_6241ed4d3e4ac" class="highlights">
 <ul>
 <li>Though a spokesperson for the firm said the exchange isn’t moving forward with the operation “at this current time,” sources said such an effort could attract a substantial amount of capital down the road</li>
 <li>The move comes as exchanges are increasingly looking to diversify their revenue streams beyond trading fees</li>
 </ul>
 
</div>



Cryptocurrency exchange FTX has considered setting up a fund of funds operation to supply investor capital to outside digital asset portfolio managers, according to three sources familiar with the matter.



The effort appears to be in its early stages, with one source saying the exchange — and its US affiliate, FTX.US — has probed the possibility with lawyers in recent weeks. It would mark one of the first such fund of funds for exchanges, which have a natural pipeline of institutional crypto investors set up to supply voluminous amounts of day-one capital. The exchange Huobi already runs a fund of funds operations, though its assets under management couldn’t be obtained.&nbsp;



A spokesperson for FTX said the effort came at the behest of clients eager for exposure to actively managed crypto strategies.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">&#8220;While we have had internal discussions to explore what a crypto fund of funds would look like given demand from the market, it is not something we&#8217;re looking to pursue at this current time,” the spokesperson said. </blockquote>



Still, FTX, led by Sam Bankman-Fried, could pursue the effort down the road. As exchanges look to<a href="https://cms.blockworks.co/coinbase-rolls-out-test-of-no-fee-trading/" target="_blank" rel="noreferrer noopener"> diversify revenue streams</a> beyond trading fees — moving into the likes of staking and prime brokerage — a fund of funds model could provide a natural fit. What’s more, it would keep big-time institutional investors involved in the exchange, which ought to translate into such players utilizing FTX’s other offerings.



“They said, ‘We get requests all the time from our big traders and our big investors who are using the exchange,’ saying, ‘Hey, is there another way that we can get exposure to the space in a more actively managed way?’” one source said.



Sources were granted anonymity to discuss sensitive business dealings.&nbsp;



If the exchange were to move forward with such an effort, another source estimated it could start trading with well in excess of $100 million, adding that there’s a “lot of interest” from institutions in such a product.&nbsp;



<a href="https://cms.blockworks.co/sources-ubs-asset-management-vetting-crypto-hedge-fund-managers/" target="_blank" rel="noreferrer noopener">Fund of funds</a> — which allocate a pool of limited-partner capital to vetted outside hedge or venture capital managers — are <a href="https://cms.blockworks.co/sources-fidelity-vet-launching-crypto-fund-of-funds/" target="_blank" rel="noreferrer noopener">increasing</a> in <a href="https://cms.blockworks.co/sovereign-wealth-fund-vet-eyes-150m-for-crypto-fund-of-funds/" target="_blank" rel="noreferrer noopener">popularity</a> this year as the number of blue-chip launches have picked up. Before now, there weren’t enough managers, especially on the hedge fund side, to justify a meaningful capital-raise for a multi-manager operation. 



The sell for institutional investors now: FTX can handle the due diligence and sourcing of managers, which can be tricky for non-crypto natives, who are typically willing to fork over fund of funds fees in exchange for the service.



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