New Crypto Hedge Fund Launch Indicates Multi-Manager Model May Take Off

Nexyst Digital is gearing up to launch two new crypto vehicles in mid-May that seek to reduce volatility and risk by employing multiple managers.

With volatility on the rise, bets on the benefits of diversified multi-manager crypto strategies are building. 

Multi-manager hedge fund firms divide capital between individual traders running distinct strategies. Single manager funds, which are more prevalent in crypto, are run by a single portfolio manager.

The latest entrant: Nexyst Digital, a nascent digital assets hedge fund firm helmed by Chief Investment Officer Val Zhigulin, whose resume includes stints in quantitative roles at Citadel and equities-focused Visium Asset Management.

Digital asset managers have conventionally employed single-manager models. That’s in part because they’ve been running far less capital than Wall Street counterparts — making it tricky to divvy up enough funds among traders to make the practice worthwhile. 

Read more: Grayscale’s Cheaper Mini Bitcoin ETF May Become More GBTC Sidekick Than Off-Ramp

Nexyst, according to two sources familiar with the matter and marketing materials obtained by Unchained, is gearing up to launch two crypto vehicles by mid-May. The team is finalizing commitments and fine-tuning its operational and investment approaches. 

The two funds employ what are called “systemic” strategies that rely on automated systems trading 24/7. But unlike traditional quant plays, known as autonomous black boxes and governed by algorithms, systemic strategies may feature discretionary levers, such as dialing risk profiles up or down.   

The startup’s in-house trading platform moves money around between internal and external traders. On Wall Street, Schonfeld Strategic Advisors is known for the same approach.

There are signs that the multi-manager model has been gaining steam in crypto. 

Upstarts including crypto asset manager Forteus have gained traction out of the gate with multi-manager launches. And fund of funds such as Bitwise Asset Management have also recorded solid showings.   

‘Layers on Layers’ of Managing Risk 

Jon Campagna, Nexyst’s  chief operating officer, confirmed the upcoming launches to Unchained. Campagna previously had been an early partner at crypto asset manager CoinFund.

“Crypto, it’s a risky asset class to get into, so when you run a multi-manager model, you’re actually adding in significant layers of risk management just by diversification of those strategies,” Campagna said. “Really, what it is is layers on layers of risk management in your own system, and that’s what creates these really attractive investment profiles.”

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Nexyst’s first vehicle, a market neutral fund, has secured an anchor investment from a New York macro hedge fund firm, one of the sources said. Market neutral strategies deploy offsetting long and short positions in an effort to profit in both bear and bull markets.

It aims for annualized returns of 15% to 20% with zero correlation to bitcoin, along with a low volatility target of just 5% (a correlation of 1 to bitcoin would mean an investment moves perfectly in sync with bitcoin.) 

Limited partners cough up fees imposed by active managers to capture alpha, or returns over a benchmark index. The idea is to outperform low-fee passive holdings like spot bitcoin — or to profit with less risk and volatility.

Volatility targets adjust employed leverage in response to market fluctuations. The idea is to do so via a mix of arbitrage and relative value strategies.

Read more: Crypto Arbitrage Trading: What Is It & How Does It Work?

The second, dubbed Nexyst’s dynamic strategy, employs higher risk, shooting for annualized returns north of 35%, while tamping volatility down below 20% and maintaining less than a 0.5 correlation to bitcoin. 

Campagna, one of three Nexyst managing partners, declined to comment on the firm’s fundraising efforts or marketing materials.

The Multi-Manager Approach, With a Twist

Both funds involve Nexyst first putting its own proprietary capital to work with outside traders. Once those traders demonstrate satisfactory metrics, those strategies are blended into the two main funds, running limited partner capital. 

At launch, the plan is to have 15 teams of traders, 11 in the market neutral fund and four in the dynamic fund. Dimitri Sogoloff, Nexyst’s chief executive officer, is a longtime alternatives specialist who founded Horton Point, a family office that evolved into an alternatives platform. 

Multi-manager firms have increasingly cornered traditional finance. They almost always control intellectual property (IP) such as trading strategies, even if portfolio managers are fired. The approach preserves profitable plays and prevents competition from swooping in.

Nexyst is taking the opposite tact, allowing traders to maintain their own IP. That means they could invest the same way, using the same algorithms, at a new employer or on their own dime. 

“We believe that the multi-manager model we’re doing with the ethos of decentralization is allowing the traders and teams to own their own IP, versus the [employer] owning their IP,” he said. “We feel like that’s why we’re successful.”