What is Beta?

TL;DR

Hedge funds and venture capital funds are separating their strategies in the crypto space to cater to institutional investors and optimize their offerings.

Transcript

separate hedge funds separate venture you saw a lot of the big funds in the space do this right like maybe they started as a hedge fund and then they broke out of venture strategy and now not surprisingly they've grown horizontally you see liquid strategies you see venture strategies like without mentioning names everyone's got it right like so um ... Read More

Key Insights

• 👾 Separating hedge fund and venture capital strategies in the crypto space is a response to the arrival of institutional investors.
• 🔊 The speaker's firm has four funds, with two focusing on high liquidity and two closed-end funds targeting private illiquid investments.
• 👾 Fundamental managers should concentrate on mid and small-cap assets in the crypto space for alpha generation.
• 😐 The speaker's firm uses four main categories to segment their liquid investments: fundamental, quantitative, market neutral, and tactical beta.
• 👾 Beta in the crypto space is evolving as market dominance shifts and the space grows.
• 🏍️ Quantitative strategies, such as trend following and mean reversion, can offer downside risk protection and outperform through market cycles.
• 😘 Market neutral strategies in crypto involve low correlation, low beta, and low directionality, aiming for true alpha generation.

Questions & Answers

Q: Why are hedge funds and venture capital funds in the crypto space separating their strategies?

The separation is occurring because institutions, such as pensions and endowments, have separate teams covering different investment strategies. To appeal to these institutions, funds are organizing their offerings accordingly.

Q: What are the main categories the speaker's firm uses to segment their liquid investments?

The speaker's firm categorizes their liquid investments into four main categories: fundamental, quantitative, market neutral, and tactical beta. These categories reflect different approaches to selecting assets and generating returns.

Q: Why should fundamental managers focus on mid and small-cap assets in the crypto space?

Fundamental managers are likely to find alpha in mid and small-cap assets, as there is more room for deep asset selection and value-based research to drive outperformance. These assets may carry higher levels of risk but also higher yields.

Q: How can one differentiate between beta and fundamental alpha in the crypto space?

While it can be challenging, differentiating between beta and fundamental alpha involves considering benchmarking and performance against certain indices. There are indices like the Bitwise 50 that can serve as a benchmark for mid-cap assets, allowing investors to assess alpha beyond the benchmark's performance.

Summary & Key Takeaways

• Many large funds in the crypto space are separating their hedge fund and venture capital strategies to accommodate institutional investors and expand their offerings.

• Institutions typically have separate teams covering hedge funds, private equity, and venture capital, which has motivated the separation of strategies.

• The speaker's firm has four funds, with two being open-ended hedge fund structures focused on liquidity and two venture funds dedicated to private illiquid investments.