Yesterday, on November 19th, Anthony Pompliano, founder of the hedge fund Morgan Creek, published a blog post in which he stated that according to him crypto hedge fund managers are in trouble.
At the time of writing this article, bitcoin marks a value of just over $4,500 and has suffered a loss of almost 15% in the last 24 hours. The rest of the market also seems to have taken the same direction with only three green cryptocurrencies in the first hundred according to data from Coinmarketcap.
Pompliano explains in his post that these market movements have pronounced effects on companies in the sector, as managers of crypto hedge funds receive commissions based on the performance of the fund they manage.
The last period of investment – explains Pompliano – ended in December 2017, bringing substantial gains to managers of crypto funds and investors in the sector. The founder of Morgan Creek, however, reports that this year the situation is quite different:
“We have seen 50-80% decreases in net asset values in some funds since then. This means these fund managers will not receive a performance fee in 2018, which drastically reduces the income of the individual manager.“
According to Pompliano, many of these managers of crypto hedge funds should be expected to simply cease trading and return the funds invested. This, however, would not be definitive:
“They are likely to sit out of the game for a few months or even a year, before returning with a new fund that will not be subjected to the high water mark challenges.“
After wondering why many of these crypto hedge funds have not yet been closed, Pompliano concludes that this is because of the amateurism typical of the industry and concludes that, if he is right,
“we could be less than 60 days away from many of the fund managers experiencing the pain of being ineligible for the bulk of their compensation. Time will tell how many decide to close up shop versus ride out the prolonged bear market.“