Editor’s note: This article from the chain ChainNews (ID:chainnewscom), the smell of the author: David Nage, venture capitalists, managing director of Ventures Apeiron, a family office in the field of community organizer, compiled: Perry Wang, the daily planet unauthorized release.
In the encryption investment market caught in fear today, we must push the truth, and it looks like some dazzling articles. It is time to discuss this one can avoid the problem of:
Why investment fund 90% encryption will be finished?
Why not go? In the past more than a year, even in the China market, we also saw hundreds of encryption assets investment funds set up quickly and show their investment immensely proud achievements in the market when the market in stride forward singing militant songs, but went into a bear market after silencing tracing.
In the past six months time, the investment mechanism of chain smell and hundreds of labeled “encryption assets investment fund” or “Token Fund” label in-depth exchanges, which is exciting to see that the field full of young people, their bold, aggressive, who is full of pioneering Wild West Cowboy temperament. But worrying is that most of these so-called “investment fund” in the encryption of assets, it is difficult to say has found compelling investment strategy, investment logic or investment method.
A large part of them, is more like a market market underwriting Lanhuo, and then went to the two level marketing shipments from earn the spread of “information asymmetry” wholesale retail institutions; another is to take the most, follow the “mode — if the open fund” a lot of encryption only, the select list part of its investment portfolio, put them together for comparison, in a brightly coloured Logo list, you might find that the difference is really difficult.
Thanks to David Nage relentlessly raised the issue with dazzling expression. David Nage is a venture capitalist in the field of family offices, is an active community organizer, he had organized a seminar in 2014 to help the family office of Bloomberg group.
Have to say, although the title of this article is that 90% of the fund “why” encryption will fail, but in fact, the core content of the article is: encryption investment fund how can avoid failure. For those bright moment, encryption investment institutions gingerly in today’s market fluctuation in, more worth reading. Enjoy ~ reading
Come, let us begin with a story.
You may have been familiar with the gambling “Warren” Warren Buffett and partner Ted Seides hedge fund Protege Partners bet $1 million? Don’t know but also never mind, I can introduce. In 2008, Warren Buffett and Protege Partners hedge fund partner Ted Seides pressure 10 year bet, Buffett with his own money, rather than his management of the Berkhire Hathaway Inc funds to bet, bet hedge funds can not beat the S & P 500 index. Ted Seides and Prot g Partners hedge fund other partners by investing five carefully selected hedge fund specific fund name is never publicly disclosed that hedge fund performance will be better than the S & P 500 index.
7 years ago in the 10 years of the game, Buffett chose to pioneer Vanguard 500 Index Fund rose 63.5%. Five hedge funds rose an average of about 19.6% Protege. Over the past ten years, Buffett finally won the game “. This 10 years, the S & P 500 index average annual compound rate of return reached 7.1%, far higher than the Protege Partners fund managers choose the hedge fund’s average annual compound rate of return, which is only 2.2% ( chain note: we heard in the Chinese investment community heard special loss comments, said Protege Partners dry out the results than the income balance treasure… To be honest, we think it is notscientific…).
So the question is: why hedge funds are so bad, do not run to win the market, finally put up the shutters?
Only in 2017, there are about 1000 hedge funds put up the shutters. The market has a lot of interesting theoretical analysis.
For why hedge funds in 2017 have put up the shutters, fail on the verge of success about 1000 hedge funds underperformed the index fund, there are a lot of interesting theoretical analysis. The famous investment review site GoldenEgg Investing founder and editor Howard Gold wrote in a column for MarketWatch written in the conclusion that this is a major issue of supply and demand:
“In essence, the ability of investment performance can be sustained is better than the market is an extremely rare genius. Earlier in the game of hedge fund investors have tasted the sweetness of some of the first, the temptation to attract more investors into the office. The results lead to a large influx of funds, reached about $3 trillion, creating an unrealistic demand: originally investment managers can repeatedly create better than the market rate of return of capital, and this is after deducting fees in return. “
Note: the Howard Gold chain heard this analysis is worth reading, link:
This is a very good explanation. But what is the relationship between the fund and the encryption? Come, let us dig a. Another point of historical data is used to do the traditional fund evaluation.
The failure rate of 1/3
The famous British journalist John Lanchester once in “New York guest” magazine published an article on most hedge fund failures: the fund’s average survival period of about five years. In the 7200 hedge funds at the end of 2010 to survive, to the end of 2011 when the 775 had put up the shutters, compared with 873 in 2012 closed, in 2013 904 closed. This means that in three years there are 1/3 hedge funds disappeared.
Of course, the total number of hedge funds has not diminished, because hope never fails, there have been new hedge fund business listing.
Note: this chain Wen long article John Lanchester in 2014 for the New York guest writing is worth reading, Biexian written too early, in fact the investment market is this thing. This article is a link
Of course, if you think the article is too long, you can read the financial times a year version of dry cargo:
In addition, we also want to take this opportunity to hear the chain loyal readers recommend John Lanchester once wrote an article about the bitcoin development articles, this article published in 2016 in the “London Review”, this article introduces the early depth of bitcoin, many times higher than the current currency circle are the strong talk nonsense. The link is:
We look at the crypto currency space, we see from 2016 to now crypto currency growth is very rapid.
Source: Autonomous Next
According to statistics research firm Autonomous Next, “our crypto currency ecological database includes 780 institutions, which is more than 500 encryption fund, which is currently managed by the total assets of about US $100-150. According to the traditional fund 30% reference failure rate, we can expect there will be shut down about 150 encryption funds over the next 6-12 months. Because the asset type famous investment bank Morgan Stanley Investment is not the traditional encryption encryption is becoming assets recently said the assets of institutional investment, could be expected to fund the failure rate of encryption may be higher, reaching 2/3, and accounted for more than 60% of the total market. Means that the next 6-12 or 24 months, about 330 fund encryption will fail. “
Intuitively, 1 months 2016 years the total market value of all encryption currency is about 70 billion dollars. To the end of 2017, in less than two years, the total market value of encryption money market soared to 7600 billion dollars. The external capital flooded, the return to the traditional hedge fund market scene, resulting in unrealistic demands: investment managers have to repeatedly create better than the market rate of return of capital, and it is after deducting fees in return.
Why is called unrealistic demand? We might as well from some key elements one by one look.
From AUM, risk management and risk fund
Source: Crypto Fund Research
From the above we can see that the size of AUM management in the asset market most encryption is not more than 5000 million dollar fund. Of course, there are some outstanding scale, such as the recent Paradigm and a16z backed by traditional fund new incoming who raised large sums of money, the two were raised 4 billion and 3 billion dollars.
Size distribution range
On a small scale of 300 asset management does not exceed the amount of $10 million encryption funds, my personal observation after speculation, with an estimated 200 70% asset management scale of less than $5 million, about 100 30% asset management amount to nearly $10 million. The amount of the 188 asset management fund in 1000-5000 million dollar encryption range, I personally think that there are only about 100 to 53% asset management between $3000-5000 million dollars, the remaining 47% asset management in the amount of 1000-3000 million dollars range. This means that about 288 of current assets management about encryption fund between 500-3000 million dollars.
Let us make a hypothesis according to some observations. If one only joined the asset investment fund named “ABC”, its assets amounted to $15 million, the fund manager’s investment style in the extreme, ignoring the traditional fund risk management program, the end of 2017 to early 2018 when the performance is very eye-catching, the fund manager does not use the traditional “10/30/60” principles of investment the amount of the 30% asset management for active distribution of investment, as the 60% reserve, 10% as expenses. The fund manager may be invested in accordance with distribution of 10/45/45 or 10/55/35.
If the asset management 55% of the amount of money into the market, means that the fund manager to invest $8 million 250 thousand, leaving $6 million 750 thousand as a reserve; if the Bitwise 10 index as the market index, means that the current investment of the fund has been a loss of 68.55%, or equivalent to a loss of $5 million 600 thousand, currently only 2 million 600 thousand dollars, plus the total reserves 9 million 400 thousand dollars.
If the fund manager uses the traditional risk management principles, means to put $4 million 500 thousand into the market, the loss amounted to $3 million, but the remaining $11 million 500 thousand.
Please keep in mind: to survive day fund, fund managers must repeatedly create better than the market rate of return of capital, and after deducting fees in return; if not, a suboptimal choice is not losing too much money.
Here I want to give a small hint: occupation fund managers use asset management tools into the money market has started to encrypt. Junior managers to solve these problems, there are at least two tools available for reference.
Should be set to avoid the lock up period, after the fund managers in the fund fully into the subject of investment, lack of liquidity into trouble. For those hedge funds greater liquidity, I see is locked for a shorter period, generally 1 years, or less than 2 years; for “stronger” liquidity risk investment fund, I see the lock up period is generally 2-3 years or even longer.
Fill the knowledge gap through education
Mature investors accept the traditional investment market ups and downs. But as discussed above, the market is not the traditional encryption market, at least in the eyes of most institutional investors is so. A short period of time, the volatility of prices since the beginning of 2018, the market decline to discuss “hard” bifurcation, some characteristics and the field of assets, in the eyes of institutional investors is still very strange. In addition, the lack of effective research on encryption of assets, until recently have some market analysis report on weekly and monthly, also need more education on the lack of knowledge of the hedge fund limited partners.
As the fund manager, lost a limited partner of the money is never a good thing, but if not limited to each quarter a letter “newsletter” to communicate with them, the effect may be better.
I have to say here, a lot of encryption fund managers will encounter a lot of funds withdrawn, the fund will eventually put up the shutters, and not just because of the market downturn, the fund performance is bad, but the poor performance and expectations and knowledge of partner management transfer is very bad, the interaction of multiple elements.
The asset management scale is small, the market “winter” feel more strongly the encryption fund, but we should conduct communication related to limited partner of its investment and potential general partner.
Risk management + capital + knowledge gap difference = lock a mess
We must consider the part of the fund investment style is very aggressive, and the risk control process was not familiar with the standard. A recent report said that 1/3 encryption fund manager at the age of 25-34. In the Internet bubble era or the collapse of Lehman brothers and Bell Sten period, they are not investors. Plus capital lock may soon come to an end, and they are lack of effective communication of the limited partnership funds, the result is a large number of investors to fund a large number of encryption divestment, put up the shutters. This situation may even exceed level 60% we have talked about this before.
Other elements may lead to closed fund
Copy the investment strategy and concentrated risk
A little story: an acquaintance in a large-scale family offices are required to configure hedge fund investment targets. They invest in many of the most outstanding global funds, these funds in there at least a total of 50 have a limited partner seats. This guy, in addition to the task of conducting due diligence on the fund and the underlying asset allocation, including change information to collect all of these funds, the monthly communication information he must study each fund, sometimes on investment institutions to regulatory agencies reported 13F report estimates, eventually he will create asset allocation matrix these funds, these funds in view of some stock overlapping investment.
Let us take the data carriers Equinix stock code EQIX as an example. A few years ago, the company’s hedge fund industry popular investment targets.
Assuming the A hedge fund asset management scale of $100 million, the 5% capital investment in Equinix shares, the actual funds that invested Equinix stock is $5 million. B hedge fund asset management scale of $250 million, of which 3.5% of the funds to buy Equinix shares, the actual investment amounted to $8 million 750 thousand. If in this case, a considerable part of 50 hedge funds in such 40% bought Equinix shares, which constitute the family office in a single huge asset concentration risk, contrary to many institutional investors had hoped to diversify the investment intention.
Note: to better understand the concentrated risk fund, recommended reading an article in the American Financial Supervision Bureau published FINRA, devoted to the theme:
Encryption of assets related to the concentration of risk
Now the market does have 2100 kinds of encryption currency, but we know that the encryption market liquidity most concentrated in the top 10 or top 50 encryption currency. I can say that, the current 500 encryption fund, whether hedge funds or liquidity risk investment fund, do Dojo on the special sandbox.
If you just copy other people’s investment strategy, you can not successfully raised a fund management fee charged 3% plus 30% commission. But today the market is such a lot of funds. This is sure to lose money in business.
I posted a tweet in earlier this year, I said an observation on the market: the market most of the fund assets have taken encrypted copy each other’s investment strategy. It was so still.
“I as a pastime today to see the three encryption portfolio. If I see a target company appeared in more than a fund portfolio, I put the company name into green, as shown in fig.. I admit now block chain investment is still in early development, but as a limited partner of the fund lock up period of 3~6 months left, this needs to change, need to see some unique strategies, rather than follow this investment strategy, otherwise it will be a problem. “
Everyone will be starting at a certain point, the fund assets in investment funds between 500-1000 million dollars encryption, if they can be more and more thoughtful personal independence of conduct Hailun, more carefully deploy risk management techniques to manage the market risk education, limited partners are more active, their performance is likely better than the scale of assets more than $100 million in funds encryption.
This is not only in the market good time is possible, when the market is bad, more likely.
However, it takes a lot of work, conscientiously do a few encryption fund will really be hacked, one of the 10% survivors to survive in the future market.
This paper has been David Nage authorized by the chain of news translation and published Chinese version