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Matthias Knab, Opalesque for New Managers: Mitchell Dong is leaving Pythagoras Investments, the crypto hedge fund firm he founded twelve years ago, to build an exchange for electricity perpetuals aimed at AI data centres. The firm passes to the two partners he hired out of graduate school: Eric Zhao, previously COO and portfolio manager, becomes chief executive, and Yusen Chau continues as chief investment officer.
Founder departures are the key-person event allocators dread most, and they are usually communicated badly. What makes this one worth reading is that the two letters sent to investors, one from Dong and one from Zhao and Chau, answer most of the questions an operational due diligence team would ask before being asked.
The founder's letter
Dong's note is short and personal. "I would not leave unless I felt that my baby Pythagoras was in good hands," he writes. Zhao and Chau, he says, were 24 years old and fresh out of graduate school when they joined, and are now "ready, able and eager to take Pythagoras Investments to the next level: a billion-dollar AUM hedge fund."
He is redeeming all of his GP capital but will retain a profits interest and remain available as an advisor. "My reputation depends on Eric & Yusen's success with Pythagoras," he writes.
The new venture returns him to the field where he started. Dong has worked in energy since 1973, and before Pythagoras ran hedge funds for more than 25 years, including trading uranium and electric power contracts. His plan is to bring what he learned from crypto exchanges to electricity markets. "One innovation I'm particularly fascinated about are perps," he writes, describing a new exchange featuring electricity perpetuals "tradable by data centers and AI agents to automate power trading." He is also exploring a power hedge fund to trade those contracts, as he did with a previous electricity trading fund.
What the successors put in writing
The second letter, signed by Zhao and Chau, is the more important document, and it is structured almost as a due diligence checklist.
Fund terms, fees and liquidity are unchanged, as are the administrator, auditor, custodians, legal counsel and investor reporting. No member of the research, trading, technology or operations teams is leaving with Dong. Signatory authority and the chair of the investment committee have been transferred to the two partners, "with the handover completed and confirmed with our administrator and counterparties."
The letter is explicit that the departure is not driven by any disagreement over strategy, performance or the direction of the firm, and says the move is one Dong "has been planning with us for some time."
The most substantive commitment concerns the GP. Dong's capital is being fully replaced by new money from Zhao and Chau as majority shareholders, from most of the firm's employees, and from a number of long-standing LPs. The new GP capital base, they write, will be comparable in size to the one before the transition, and fund liquidity and the funds' capital base are unaffected.
"We see this as the strongest signal we can offer," the partners write. Employee participation, they add, "ties the team to the firm's long-term success at exactly the moment continuity matters most."
The platform they inherit
Pythagoras now runs arbitrage, statistical arbitrage, quantitative directional, DeFi yield and event-driven strategies across digital asset markets, supported by a systematic research pipeline and a recently upgraded execution engine that nets orders across strategies to cut costs and reduce market footprint.
The firm has a record of performing when crypto does not. In 2022, as FTX collapsed and Bitcoin fell around 60%, its market-neutral and trend-following funds each finished the year up roughly 8%, according to reports at the time, despite the arbitrage fund having around 10% exposure to FTX. The same year cost it, too: CoinDesk reported that assets roughly halved to under $40 million as investors retreated from the sector. Opalesque New Managers first profiled the firm in 2018, when Dong was finding cross-exchange arbitrage in a crashing market.
On the billion-dollar ambition, the successors are careful to set the order of priorities. "Growth will never come at the expense of the discipline and risk management that brought us here," they write, adding that the transition "is not a moment at which we intend to change our risk posture. Scale is the by-product of doing this well, not the goal in itself."
What allocators will still ask
As transition letters go, this is close to a model. It addresses continuity of terms, service providers, people, authority and capital, and it does so specifically rather than in reassuring generalities. A few questions remain for investors to put directly.
The first is the size of the GP capital. "Comparable in size" is a commitment of direction, not a number, and allocators will want the figure and the split between the partners, employees and LPs.
The second is the key-person provision. Neither letter mentions whether the fund documents contain a key-person clause tied to Dong and, if so, whether it has been triggered, waived or amended. For investors in funds where it exists, that clause governs their rights more directly than any letter.
The third is the profits interest. Dong keeps an economic stake in Pythagoras while building a new exchange and potentially a new hedge fund in adjacent territory. The markets are different, crypto versus power, and there is no obvious conflict, but investors will reasonably want to know how that interest is structured and what, if any, role Dong retains in firm decisions.
The partners are inviting exactly those conversations and offering updated due diligence materials. For a firm that has spent twelve years arguing it is built to survive the market's worst moments, this transition is a test of the same claim applied to itself.
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