Australian-based investment management firm First Digital Capital (FDC) is preparing to open its fund up to wholesale investors for the first time at the end of this month, with a goal to raise an initial $30 million, which will be used to invest in blockchain technologies.
First Digital Capital chief information officer Patrick Bennett says the fund was born out of the need for a regulated hedge fund specialising in blockchain.
“The whole crypto world is highly unregulated at the moment. It would be good for the exchanges if the regulator in Australia took a view as what constitutes as security and general governance around it,” Mr Bennett said.
“My view is that the crypto world cannot continue to operate like the wild west; it needs to be more regulated once it becomes mainstream. That will take time and it goes against some of the initial thoughts of the technology being completed middleman-free.
“There will be different ways to do it, but for us the sooner regulation comes in the better. It will bring a lot more comfort to investors and therefore encourage people to invest in the space.”
FDC’s initial targets for the fund won’t be Australian investors. Instead, FDC will launch in Singapore and Hong Kong. Mr Bennett explained how in comparison to investors overseas, Australians are more risk averse.
“We hosted a number of roadshows recently but the feeling we got from Australian wholesale investors was yes, they were interested but they also wanted to wait and see. They’re fairly conservative,” he says.
However, Mr Bennett doesn’t blame Australian investors, acknowledging the sector has been overshadowed in recent years by the “hysteria and euphoria that was around bitcoin in 2017 and that’s been dampened in 2018 when the whole bitcoin collapse happened. It lost 80 per cent of its value, and a lot of other coins and tokens also lost nearly 90 per cent of their value.”
“People have been a bit weary. This has been driven by retail investors. When you start hearing hairdressers and taxi drivers telling you how much they’re making out of bitcoin, it’s time to get worried,” Mr Bennett said.
“But that has been masking the uptake of institutional market. We are starting to see large companies get involved because they see it as a quicker, cheaper and faster way of exchange.”
To minimise volatility for investors, FDC has set up its portal fund using a “fund of funds” structure. Raised capital will be spread between different line managers and then invested in other hedge funds that specialise in digital assets and blockchain technologies.
These will include crypto assets, such as bitcoin or technologies and protocols that companies are developing that could drive the whole development of the blockchain space.
“What we’re looking to do is avoid the peaks and then the collapse afterwards. We want a far smoother journey,” Mr Bennett said.
“Our idea is to make money when it’s there to be made but not to lose it. This will deliver far more consistent returns.”
But FDC are no rookies at this. Between the team, they have decades of combined experience in investment and blockchain. On their advisory committee is blockchain expert and former Wall Street Journal columnist Michael Casey and director of IBM’s Blockchain Labs Nitin Guar.
Mr Bennett is a specialist in investment research and portfolio management having headed up positions in HSBC and Colonial First State. The company’s chief executive Deryck Graham meanwhile was co-founder of QHL, dubbed as “Australia’s largest composited aerospace defence contractor”.
While the initial target for FDC’s portal fund will be Asia, Mr Bennett is confident that it will be open to Australian investors too – and eventually pure retail investors.
“That being said it’s a Cayman Island hedge fund, so if there’s an Australian investor who wants to invest their money now, we’re also happy to take their money too.”
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