Wall Street Vets Raise $50 Million for Crypto Fund of Funds

Sitting at his desk at Credit Suisse, Sina Nader watched the bottom fall out of the global economy.

As a junior associate helping manage a $100 million portfolio of equities, he had a first-hand view of the 2007-2008 collapse from the Swiss bank's Los Angeles offices and recalls frantically taking screenshots of the price as Lehman Brothers' stock collapsed to "essentially zero."

"My first thought was, 'Holy shit, some traders just took out Lehman,'" Nader told CoinDesk. "My next thought was, 'Holy shit, if the fifth-largest investment bank in America can be taken out like this, is the banking system actually safe?'"

Likening it to the feeling kids get when they learn Santa Claus isn't real, Nader says that the day changed him forever – and eventually sent him into the wild world of cryptocurrency.

After going down the crypto rabbit hole, Nader, who's also worked for Morgan Stanley, teamed up with a former private wealth analyst at Morgan Stanley, Jacob Kirschenbaum, and others to launch Cryptolux Capital, a crypto fund of funds.

And revealed exclusively to CoinDesk, Nader has secured about $50 million of the $100 million the fund is seeking.

While the number of crypto hedge funds has grown from about 124 in October to 175 today, Nader positions his experience in one of the traditional financial system's worst hours as the key to Cryptolux's success.

"I look back to what I saw in the financial services world, and that really sets the stage for me to be excited about crypto," Nader said. "When you're watching the five biggest investment banks in the country either go out of business or change their entire business model, you realize that the banking system is not as strong as many people may have believed it was."

He continued:

"I've got this view that this banking system is not infallible, and wouldn't it be nice if there was a system that went around, or was outside of the banking system for the use of wealth?"

Have some humility

According to Nader, Cryptolux is designed specifically to take advantage of the lessons he learned, in an effort to offset the downside risks of the volatile cryptocurrency market.

At the heart of that is Nader's captivation by bitcoin’s ability to store value outside the traditional banking system. If the financial sector buckles again, bitcoin won't go down with it.

But as he started looking at crypto hedge funds more broadly, he saw a number of cryptocurrencies and funds diversifying in the cryptocurrency space outperforming bitcoin itself by as much as 200 percent.

So, he started talking to other investors and coming up with a strategy that would capture those huge gains.

And Cryptolux believes it's found that strategy in a targeted fund-screening process that looks for an attribute he contends is all too rare among today's cryptocurrency speculators, just as it was in investors before the financial collapse: humility.

"Anyone who really claims to know exactly what is going to happen in the crypto space is probably misguided at best," Nader said, adding:

"So I think it's important to come at this space with a strong amount of humility, because I think it will inform your investment strategy and ultimately your trading."

Look to the futures

The second way Nader aims to offset downside risk is by further hedging with cryptocurrency futures options.

Nader said, initially the fund will establish short positions in the nascent bitcoin futures market. In the event of a market correction or pullback, he expects the bitcoin futures position will increase, providing Cryptolux with a buffer against the dips.

Currently, Cryptolux is only investing in bitcoin futures, but Nader expects to add ether futures should that product get approved by regulators.

Hinting at which hedge funds Cryptolux is mixing into its fund of funds, Nader said he’s "excited" about Silver 8 Capital and MultiCoin Capital, though he's keeping an eye open for changes in the strategies of the fund managers over time, and could modify his own fund's composition accordingly.

And going forward, Nader said the firm will be exploring the possibility of expanding its investments to include proprietary positions in crypto startups and other blockchain-related companies.

For interested investors, there’s a $1 million minimum to join, with a 1 percent management fee and a 15 percent carry on money made from the investment. By early next month, Nader expects to reveal further details about the company’s risk management program along with other new features.

And if all goes as planned, he hopes to raise a second fund targeting $125 million.

According to Nadar, he’s primed to do it, saying:

"Our view of what our value-add is, is we give you a diversified portfolio and we take care of the risk management component on top of that."

Image via Sina Nader