ValueWalk’s Raul Panganiban interviews Kristin Boggiano, Co-Founder and President of CrossTower, and discuss the 3rd Annual Global Crypto Hedge Fund Report and the key findings.
Q1 2021 hedge fund letters, conferences and more
The following is a computer generated transcript and may contain some errors.
Interview with CrossTower’s Kristin Boggiano
Transcript
Hello podcast listeners. Today’s very special episode with Christine boyana. co founder, president of cross tower. Christine is also the founder and co chair of Darla digital asset regulatory and legal lines and executive at AI and alternative investments. Christine earned her Juris Doctor and master in business from Northeastern University, and her Bachelor of Arts at Sarah Lawrence College. In today’s episode, we discuss the third annual global crypto hedge fund report and the key findings on welcome Christian to the show. And I want to welcome all our listeners to a very special episode. This podcast is sponsored by the hidden value stocks newsletter, published once a quarter. The Hidden Valley stocks newsletter contains at least two interviews with up and coming hedge fund managers and their top two favourite investment ideas. Each newsletter subscriber not only receives the detailed investment pieces on each idea, but we will also provide direct access to the funds profile, as well as their quarterly updates. We are proud to report that the average annualised return of all 60 stocks profiled in hidden value stocks since inception is 27.9% with an average holding period of 319 days to download a 10 page teaser issue or sign up for a five day free trial. Head over to hidden value stocks calm podcast listeners can get 35% off the annual subscription price with discount code VIP 90.
Welcome to value talk with Raul.
Just wanted to welcome our listeners to a very special episode of Kristen Luciano, co founder and president of course tower. And Kristen, welcome to the show.
Thanks for having me on.
All right, yeah, if we can just begin with your background and what led you to what you currently do today.
Oh boy. Yeah, I started off my career on the trading floor, creating derivative products for emerging markets and high net worth in hedge funds. And they also have a lot of grease. So I in the middle of a negotiation. I was Lord over to a law firm, where I started the structured products and derivatives group at Sheltie, Robin Zabel and I created lots of products. So creating products is something that I really found fascinating and fun. When the market crashed in 2008, I had to figure out what I was going to do because a lot of the products that I had created, were were no longer I couldn’t sell them anymore. So I became a regulatory lawyer and went back to advising hedge funds and launching hedge funds for on behalf of my clients, that is when I met Bitcoin, sunlight hedge fund clients wanted to trade digital assets. And so that was my journey 2010, of course, Silk Road and mount Gox happened. And we quickly decided that fiduciary should be very careful when managing, oh, when trading digital assets and I retreated. But all of these things, my structured products, my regulatory and my introduction to digital assets really came together in 2018. And I really began my journey building cross tower. The concept of cost brass tower came about when I was looking at how underdeveloped the ecosystem was. And I felt that my background in building and launching product and hedge funds and my regulatory background and my understanding of digital assets, put me in a good position to create this company.
Nice. And you recently came out with a survey on crypto hedge funds. Just want to know what was the inspiration behind that survey and who’s a mentor?
Yeah, in my work with the alternative Investment Management Association aima. Together with PwC, and Elwood, you know, finding out what clients want is a big, you know, is an objective of everybody that starting a company, right? You want to understand, you know, what your clients, you know, what their desires are, what their fears are, how you can make them happy. What What can you deliver to them that will satisfy them. So I was really pleased to participate under a HMAS with a ma in developing questions for traditional hedge funds in what they would do. Think of digital assets and found some really interesting results.
Before we get into those results, just want to know, how was the survey conducted?
They asked me what you think hedge funds want to know, what about digital assets? What questions and we, we put together a list of I can’t remember, I think it was about 20 or 30 questions. We didn’t want to overwhelm hedge funds. And then I sent it out, at least to the hedge fund clients that I knew. And I think they aima has a very large that of hedge fund clients that participate on their platform. So we sent it out and asked for your results to be delivered by x date. And so when x date came around, we collected those answers and wrote them up.
Nice. And what are the key takeaways from the survey?
Um, you know, surprisingly, so was about 40, large hedge funds, traditional hedge funds. I wasn’t surprised to discover that the primary investors were macro funds, arbitrage funds on quant funds, you know, long short, equity funds. That wasn’t that wasn’t surprising. I was surprised that already, you know, 21% of them had already been investing in digital assets with the average amount allocated, as in the amount of 3% on and off of those entities that were invested in digital assets. 85% of those intended to deploy more capital into those that those assets that asset class by the end of the year. I thought that was very interesting. Also very interesting was the obstacles that people cited when, when deciding whether to invest in digital assets. regulatory uncertainty was the far greatest barrier 82% of hedge funds said that they were concerned about the regulatory environment. Those that invested in digital assets, still, over half of those entities cited regulatory uncertainty as a major challenge. And of course, I mean, I mean, I, as a regulatory person, understand it’s, it’s unclear whether something’s a commodity or security, for example. So there really are risks that you need to carefully think about. reputational risk, not understanding how their own investors will consider them. 77% of hedge funds said that was a concern of theirs. And more than half 64% of the respondents said that they don’t have enough knowledge of digital assets to invest in them. So that was really interesting as well.
Yeah, definitely. In regards to regulatory risk, what are the what, in your opinion are the top risks that they face?
Yeah. So in addition to starting cross tower, I started the digital asset regulatory legal Alliance, Darla, we’ve got about 140 people from traditional finance. You know, dealers, hedge funds, we have the native digital entities. So the exchanges, the custodians, and and we have some of the protocols. So it’s a very lively bunch, and we get together once a month. And we talked about this is exactly what we’re talking about, what are the risks? What is the regulatory environment like? And the risk is that we don’t know what is going to happen in DC, we don’t know, you know, is it going to be reasoned and rational regulation that’s going to develop? Or is it going to be extreme? You know, reactionary, you know, let’s just ban Bitcoin, you know, which, of course didn’t work out well, for Nigeria, Turkey, or India, we, you know, hopefully, it’s like, carefully and measured because we have an opportunity in the United States to really be a place where innovation happens. Jobs, you know, I we have 28 people that work across our we could grow, you know, we’re offering a service. So hopefully, that the the regulatory certainty that comes about, you know, is done in a in a measured way in the next, you know, six to 12 months.
Definitely. And then the reputational risk. Why are they concerned with that?
I mean, until last year, right. If you weren’t two years ago, when I started cross tower, the traditional financial world did not believe that digital assets were an asset class. Goldman Sachs came out in May of last year and said it wasn’t an asset class, in fact, for which they flipped. And now they say that, you know, digital assets are an asset class. Paul Tudor Jones came about we had Jim Simons at Renaissance we’ve had, you know, Michael Saylor, we’ve had drunken Miller, we’ve had one, we’ve had Scott minor, and we’ve had one person after the next really endorse the, the innovation and support it. So in time, I think people will no longer associate Bitcoin and other digital assets with the bad things that happened in in in 2014, and 2015. The same reasons that I cited to my clients not to be involved in digital assets. It was associated with hacking, it was associated with the Silk Road, I think that narrative is changing. And as that changes, I think people are more more willing to include this asset class into their portfolios.
And then will will crypto hedge fund space fee pressures, like traditional hedge funds?
But of course, but of course, I think when the asset class is difficult to understand, when there’s regulatory obstacles, when there’s operational obstacles, when there’s, you know, difficulty, you can charge higher fees, because you really need the knowledge base. And so a company like CROs tower, what we’re trying to do is build that infrastructure, build the on ramp, build the off ramp, you know, put the plug in the in the socket, so that, you know, you can begin the the development, the ease the frictionless this once there is no friction, it’s very hard to justify a fee. And so in time, you’ll see the fees drop for sure. But right now, I was looking at in new in the report for crypto only hedge funds. There’s they’re charging far more than two, two and 20. So and then traditional funds, I think everyone that’s traditional hedge fund person realises that, you know, two and 20 is no longer at an achievable standard. It’s it’s much less than that.
Yeah. With the non crypto hedge funds, including digital assets in their portfolio, are they able to charge a little bit higher fee?
I don’t think it’s, you know, I think I’ve mentioned it was it’s up to an average of 3% of their portfolios, don’t 3% of a, you know, $20 billion dollar hedge fund is a lot. But it isn’t enough to move the needle for them to charge more, but maybe maybe investors will specifically go to them for their their ability to invest in this asset class. And maybe they’ll set up a separate fund and charge more.
One thing I found interesting on the survey was the launch of new funds that were correlated with the rise of Bitcoin. So I just want to know, why is that?
So you you’ve asked that What the Why as bitcoins prices increase if there have been more funds that have launched mean, you know, when something’s rising and getting a lot of attention, it’s kind of like when you want to launch something, because, you know, people’s eyes are focused on that, that asset class. But, you know, it’s funny, I mean, you saw the other day that there was a launch of a senior secured note for 400 million that was oversubscribed, I think MicroStrategy raised it to 500 million. And then there was a, there was demand for up to 1.2 billion. As I understand the company said, that is just shows you this demand for an alternative asset class like Bitcoin, for sure. So it doesn’t surprise me that this there’s this correlation.
I guess, could the same thing be observed with digital assets being included in the portfolio of non traditional, I mean, of traditional hedge funds that with the rise of Bitcoin, that they would include it more as well?
You know, what’s funny? I mean, right, so I started advising hedge fund on Bitcoin issues, literally 11 years ago, I think, you know, the goal of a hedge fund is to make money, like that’s their objectives. And if there’s money to be made in Bitcoin, they will want to make it and as long as the safeguards around you know, cuz, you know, the investor protection, and they can they can meet their fiduciary obligations, they’re going to want to trade Bitcoin, for sure, or whatever it is with ether or polka.or Ave, or whatever, whatever the you know, the asset classes, as long as it’s within their thesis, their investment thesis.
So in regards to the survey, what does this all mean going forward, and or what the results that you saw there. And then will we see greater adoption of crypto and hedge fund strategies going forward as well?
Right. I mean, I believe so. I mean, you saw from the survey, that more and more entities are looking into this asset class. That is clear. I’ve had a number of inbound queries from my former clients. And, you know, I don’t see it slowing down. The only thing I think that’s the biggest risk for it slowing down is having a knee jerk reaction regulatory environment, which I think would not be healthy for the US economy. So I hope that doesn’t happen. But other than that, I just, I just see us developing, you know, crib CBD C’s are, once you have central bank, digital currency, people are going to become familiar with wallet. Once you become familiar with a wallet, it’s not very hard to imagine that you’ll be going into stable coins going into other digital assets and the whole digital ecosystem developing. So I think we’re, we’re at the beginning of a large sea change and in the way we work within envision money, and assets.
And then just want to know, your closing thoughts.
It was really nice to meet you. I was really, it’s really great to, to be on the show and to talk to you.
All right. Yeah, Kristen, I just wanted to thank you again for taking time for the podcast. And thank you for sharing your wisdom.
Thank you. I’ll talk to you soon.
Hello, valuewalk. listeners. I want to thank you for your time. If you have any guest recommendations, Questions, comments and feedback, please email me and our pen gambin@hedgefundalpha.com. I would love to hear back from you and appreciate your support. Thank you again.
