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The cryptocurrency hedge fund sector has been on a growth tear in recent years, with launches both large and small across a variety of strategies. Regulators in all markets have been trying to keep up with developments in the industry, with many still to formalize a framework in which these assets can be traded.
Investors in digital asset hedge funds – mainly high net worth individuals and family offices – have been pushing for change themselves, demanding more transparency with regards to the operations of the fund and more comfort in terms of the security of their assets.
That’s not all, however. Hedge funds of all types are looking at digital assets, both in terms of a dedicated investment vehicle and as part of a multi-asset fund. While many aspects of administering a digital assets hedge fund and, say, a public equity hedge fund, are similar – the processes around collecting the data from an independent third party to calculate the NAV are the same – there are nuances that hedge fund managers looking to take the plunge into cryptocurrencies and other digital assets need to understand.
The challenge in digital asset administration world is figuring out the exact price point of when the digital asset is purchased so that an accurate NAV can be calculated. For something like Bitcoin or Ethereum, that task isn’t so bad. For something that isn’t listed on an exchange, like an NFT, for example, then it becomes more difficult. And when the manager has bought a digital asset with another digital asset, it creates another layer of complexity.
Hedge fund managers looking to the digital assets sector to diversify their existing portfolios or create new products for their clients need an administrator that has experience in administering all assets, both separately and comingled. Indeed, their investors depend on it.
Anthony D. Mascia is Managing Partner at EFSI. Connect with him on LinkedIn here.
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EFSI is an independently owned, SOC-1 compliant, full-service fund administration firm. We provide accounting, reporting, administrative, and capital introduction services to a wide range of alternative investment funds including hedge funds, funds of funds, private equity funds, real estate funds, venture capital funds, and family offices. The center of EFSI’s service incorporates resilient technology and accomplished staff, providing clients a tailor-made service with exhaustive transparency. Give us a call today or reach out to our support team online. We look forward to hearing from you soon.