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Alternative Market Briefing

New bitcoin hedge fund produces stellar returns

Wednesday, August 11, 2021

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Aylon Morley
B. G., Opalesque Geneva for New Managers:

A Cayman Island-based manager launched a pure bitcoin hedge fund in October 2020 and has since produced remarkable returns, reflecting crypto hedge funds' general returns.

SAVA Investment Management was founded two years ago by Aylon Morley and Pancho Vanhees.

Aylon Morley will be presenting at the next Small Managers Big Alpha webinar on 7th September.

The fund

SAVA's flagship, the SAVA Bitcoin Volatility Fund, can take long and short positions. It aims to profit from Bitcoin price movements by capturing the underlying volatility through a combination of discretionary and proprietary-based algorithmic trading.

It has returned 80% from inception to the end of June - compared to the S&P's 25% return in the same period. The July returns are estimated at about 10%. The best results were in February (28%) and March (27%), when the most popular digital currency rallied.

In February, the price of bitcoin jumped more than 50%, peaked at about $57,000 and went up to $61,000 in mid-March. It did not stop there, going up further to a high of almost $63,000 in April. It went down to $30,00 in July and is currently priced at about $46,000.

The fund does not require management, subscription, or redemption fees. It does however charge a 30% performance fee after a hurdle rate of 5%.

So why investing in bitcoin? "High liquidity coupled with capricious market volatility is our forte and our dedicated dashboard was built to capture the directional market swings inherent in this nascent market space," Aylon Morley tells Opalesque.

The fund was "designed specifically to reflect the manager's mental fortitude and methodological approach, gained from more than 25 years of prop trading experience," he adds. "SAVA is a seamless amalgamation of experience and machine."

Through a discretionary and technical approach, SAVA finds alpha in the most volatile asset class of Bitcoin, he explains. This is done through deploying a list of advanced order types designed in-house, a highly sophisticated proprietary dashboard created by the manager. The manager uses both spot and futures positions to capture the profits fundamental to the underlying volatility of the asset class.

The founders

Aylon Morley previously worked in the city of London, first as a fund researcher for UBS and later on, as an analyst for Thomson Financial and a financial writer for Reuters. He later served as the business development director for Granite Alphen Capital, a Swiss-based, volatility hedge fund. For the last 14 years, he has also been active as the Tech Investment Director for Wentworth Hall, a London-based family office that specializes in private equity ventures and start-up investments. In the last five years, he has been an active member and investor in the blockchain and cryptocurrency ecosystem. Ian Morley, chairman at Wentworth Hall family office, serves as chairman.

Pancho Vanhees was the co-founder of TFAL Investments, a trading firm in Luxembourg, the co-founder of Coinweb, a blockchain house in London, and a seed investor of Fundbase in Zurich. He is also the founder of Skynet Trading, a digital asset trading firm in Belize.

Crypto hedge funds today

At present, there are two kinds of cryptocurrency hedge funds. Those that manage portfolios containing exclusively cryptocurrency, and those that have added some cryptocurrency to a mix of other asset types. SAVA belongs to the first group.

A recent survey by fund administrator Intertrust Group featuring 100 hedge fund CFOs globally, found that executives expect to hold an average of 7.2% of their assets in cryptocurrencies in five years' time.

"If replicated across the sector, that could equate to a total of about $312bn of assets in cryptos, based on data group Preqin's forecast for the total size of the hedge fund industry. 17% of respondents expected to have more than 10% in crypto," according to Intertrust.

"The growing enthusiasm shown by hedge funds stands in sharp contrast to widespread scepticism among more traditional asset managers, many of whom remain concerned about cryptocurrencies' huge volatility and uncertainty over how they will be regulated."

According to PWC, a multinational professional services network of firms, around a fifth of hedge funds are currently investing in digital assets, and the average percentage of their total AuM invested in digital assets is 3%. More than 85% of those hedge funds intend to deploy more capital into the asset class by the end of 2021. Around a quarter of hedge fund managers who are not yet investing in digital assets confirmed that they are in late-stage planning to invest or looking to invest.

In its 3rd Annual Global Crypto Hedge Fund Report 2021, PWC estimates that the total assets under management (AuM) of crypto hedge funds globally increased to nearly US$3.8bn in 2020 from US$2bn the previous year. The median AuM at fund launch is US$1m, indicating that funds have generally seen an impressive 15X increase in AuM.

Furthermore, the median crypto hedge fund returned +128% in 2020 (vs +30% in 2019). The median best performance strategy in 2020 was discretionary long-only (+294%) followed by discretionary long/short (+129%), multi-strategy (+114%) and quant (+72%). As for investors in crypto hedge funds, the vast majority are either high-net-worth individuals (54%) or family offices (30%). Most crypto hedge funds trade Bitcoin (92%). And they tend to be domiciled in the same jurisdictions as traditional hedge funds, with the top three being the Cayman Islands (34%), the United States (33%), and Gibraltar (9%).

***

Next Small Manager Big Alpha webinar

With larger quantities of capital chasing the same alpha strategies and continuing to erode alpha, savvy investors are turning to smaller or emerging managers as they look for alternative sources of return. In the third episode of this ground-breaking webinar series, we present four managers:

- Salman Baig, Unigestion
- Aylon Morley, SAVA Investment Management
- Theron de Ris, Eschler Asset Management
- Daniel Butler, Blue Swan Investors

When: Tuesday, September 7th, 2021, at 10:30 am ET
Free registration here: www.opalesque.com/webinar/

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