A large number of cryptocurrency hedge funds will close over the next year, and the reason will surprise you.
Crypto hedge funds is absolutely as well as traditional. They manage investors ‘ funds tend to trade actively in them, for what charge a management fee and a prize. Management fee in a hedge Fund generally is charged on funds under management and is calculated in accordance with the defined periods. Typically, the management fee charged by hedge funds is 2%. Award of hedge funds is calculated at the end of the year, on the bases of their profits generated. In most cases, hedge funds charge a 20% premium.
In 2017 crypto managers of hedge funds thanks to a well-earned reward structure. The calculation was carried out in December 2017, at the peak of the bull market. If crypto hedge Fund has raised $ 20 million. and made them $ 100 million. by December 2017 (5x), the Manager took a ~ $ 16 million. as the prize. Not a bad payment for a year or less of work. In most legal documents hedge funds fixed “the highest value of the net assets of the Fund.” It States that the Fund Manager cannot receive the bonus if the Fund did not exceed past performance.
The highest value of the net assets of the Fund shows the most common Fund, which was before. In the example above the highest value of the net assets of the Fund amounted to $ 100 million. Thus, if the Fund showed less than $ 100 million. in December 2018, the Manager would not have received the award. The General decline in the crypto market 70%+ makes managers able to beat their own performance in 2017 highly unlikely. This means that they will receive their awards this year. In such a situation, can make the Manager crypto hedge Fund? They have three options:
1. To attract more capital
2. To survive a bear market,
3. To close the Fund.
A large number of control crypto hedge funds are now actively working to attract capital, because it will not be counted in the score of the previous highest net asset value of the Fund. This “new money”. The new money will give the Manager the opportunity to receive an award from funds under their control. Some managers will try to wait out the situation. In some cases, they will need to augment the current means 4 times again to get the prize. This is unlikely in 2018 and no one knows the outcome of 2019. If you control a crypto hedge funds will not be able to attract new capital and will understand that increase means 4 times over the next 15 months will be very hard, they most likely will close the funds. Instead of working only for wages over the next 15 months, they will be able to return capital to investors and move on.
At the time, as some will close their crypto hedge funds, someone will open a new one. Someone will join other projects. And some will be able to stop working and retire. However, none of these outcomes seems about as exciting as managing a successful crypto hedge Fund, which promotes the technologies of the future. I think many funds are still working as managers are not fully aware of the problem faced by them and/or they still believe that they can overcome the highest value of the net assets of the Fund. This will all change in December 2018, when the control does not receive the expected compensation for their work.
The moral of the story: enjoy the good times.