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Hedge Fund

Crypto funds outperformed Bitcoin and broader market in 4Q18, but still lost nearly 20 percent in aggregate

Quick Take

  • Median crypto fund returns were down nearly 20 percent in 4Q18, but active managers outperformed bitcoin and large cap digital assets by roughly 25 percent
  • The best performing crypto fund strategy was Quantitative, down only 3 percent on the quarter
  • Vision Hill estimates aggregate crypto fund AUM as of 4Q18 to be approximately $4.5 billion, down 25 percent since 2Q18
Vision Hill Advisors released their 4Q18 Crypto Hedge Fund returns report, a self-reported cryptoasset benchmark study that measures various fund performance relative to Bitcoin and the broader crypto market.
 
In absolute terms, 4Q18 was a brutal quarter for crypto funds, offering by far the worst performance since the benchmark started with median crypto fund returns registering an 18.8 percent loss (n = 48) vs. a 9.2 percent loss in 3Q and 4.3 percent loss in 2Q. On a relative basis however, median returns did outperform Bitcoin by nearly 25 percent, and the Bitwise 10 Large Cap Index by almost 27 percent in 4Q18. In an email exchange with The Block, Vision Hill Partner Dan Zuller noted, “Active managers outperformed passively holding bitcoin and large cap digital assets over the quarter. We think this is a positive finding for all active managers in the industry and will help move the asset class forward for institutional investment as we develop better ways to benchmark performance by strategy.”
 

Taking solace in “hedged” returns?

Not all strategies have actually under-performed expectations on an absolute basis, either. Quantitative focused funds (directional/momentum, arb/market neutral, and long vol) outperformed BTC returns in 4Q18 by about 40 percent, returning a median return of 2.9 percent. The quant bucket has also yet to lose more than 3.1 percent in a single quarter. Meanwhile, looking at Vision Hill’s distribution of fund returns, at least two quant funds (out of 10 reported) were up in 4Q18. For those managers looking to quell investor concerns, it remains to be seen whether broader fund performance has offered enough to prevent a rise in fund redemption once typical lock-up periods begin to run off. 

Quants gonna quant

Source: Vision Hill Advisors, The Block
Note: The graph is an illustration of median and std deviations for the strategies, and takes liberty with assuming normal distribution of returns with a small sample size. Fundamental: n = 28, std = 15.1% | Quantitative: n = 10, std =12.5% | Smart Beta: n = 9, std = 7.7%

Other highlights from the report include:

  • Vision Hill estimates that based on the latest recorded post-money valuations, the private token market (SAFTs, SAFEs, and other funding rounds) on paper is worth anywhere from $15 -$20 billion, noting that given the current drawdown in the public markets these values are likely substantially above fair value.
  • The firm also estimates that the broader private equity value of businesses within the ecosystem (exchanges, custody, broker-dealers, lending, service providers, research/news platforms, etc.) have an aggregated paper value of approximately $35 billion, also with the asterisk of being dislocated from true fair value.
  • Vision Hill estimates aggregate crypto fund AUM as of 4Q18 to be about $4.5 billion (not including legacy funds that have exposure to the space) with the top 20 funds concentrating 50 percent of assets. The $4.5 billion is 25 percent lower than their estimate for 2Q18.
  • A call to action – if you’re a crypto fund that hasn’t connected with Vision Hill and would like to participate in next quarter’s benchmark study, reach out to: [email protected]

The report also included a caveat of the results by acknowledging that the study can include self-reporting and survivorship biases, but with the hope of actively smoothing out these issues overtime. Dan Zuller added, “the number of funds that didn’t report were less than a handful this quarter. We attribute this to the year-end audit cycle as well as the fact it was generally a tough quarter.”