Key Takeaways
- • Polychain Capital's crypto hedge fund returned 1,332.3% over its lifetime for investors who stayed invested, according to an investor document obtained by CoinDesk, covering returns through November 2019.
- • Annual returns swung from a 2.7% loss in 2016 to a 2,278.8% gain in 2017, a 60.4% loss in 2018, and a 56.1% gain in 2019.
- • Over the same period, the Bloomberg All Hedge Fund Index showed non-crypto hedge funds returning -5.9% in 2018 and gains of 4.0%, 9.2% and 9.0% in 2016, 2017 and 2019.
- • The fund's best six-month stretch gained 529.5% (January to June 2017), while its worst lost 47.6% (July to December 2018).
- • Roughly half of the fund's roughly $550 million in assets (Q4 2019) were illiquid tokens acquired through SAFT agreements, a structure the SEC has not formally recognized.
Summary
An investor document obtained by CoinDesk charts the first four years of Polychain Capital's cryptocurrency hedge fund, showing extreme volatility alongside a strong cumulative result. Yearly returns moved from a 2.7% loss in 2016 to a 2,278.8% gain in 2017, then fell 60.4% in 2018 before rebounding 56.1% in 2019. The document accounts for returns through November 2019. Investors who held their capital across the fund's full lifetime would have netted 1,332.3%, according to the document, though realized returns depend on the timing of each investor's deposits and withdrawals.
According to the Bloomberg All Hedge Fund Index, non-crypto hedge funds lost 5.9% in 2018 and gained 4.0%, 9.2% and 9.0% in 2016, 2017 and 2019. CoinDesk noted that leading non-crypto hedge funds have generated lifetime gains of 15% to 35%. Polychain declined to comment. Its hedge fund carries a lock-up of at least six months, a feature that CoinDesk said makes performance snapshots highly sensitive to monthly volatility and poses risk for investors who need shorter-term liquidity.
An analysis of 39 months of activity starting in September 2016 found the fund's return curve rose in 1 of 4 months in 2016, 10 of 12 months in 2017, 3 of 12 months in 2018 and 6 of 11 months in 2019. Negative months clustered in the final quarter of each year and in the first two quarters of 2018 and 2019. Monthly returns averaged a 7.1% gain. CoinDesk's calculations put the best six-month run at 529.5% and the worst at a 47.6% loss.
Per an accompanying investor deck, more than 20 crypto assets averaged $20 million positions each within the $550 million the fund controlled in Q4 2019. Half of the holdings were liquid coins trading on exchanges, and half were illiquid tokens bought through Simple Agreement for Future Tokens (SAFT) contracts. A SAFT treats a token as a security and freezes redemption until the underlying network becomes usable. Investors and issuers view SAFTs as a regulatory accommodation, but the SEC has not officially recognized them as a valid legal framework.
Polychain was founded in 2016 by Olaf Carlson-Wee, who serves as chief investment officer. Matt Perona is COO and CFO, and Joe Eagan is president. The hedge fund is the firm's first fund and runs in parallel with a venture capital arm. Investors include Andreessen Horowitz, Founders Fund, Sequoia Capital and Union Square Ventures. Polychain began raising $200 million for a second venture fund in 2019, and March 2019 SEC filings showed $595.1 million in aggregate holdings.
According to the Bloomberg All Hedge Fund Index, non-crypto hedge funds lost 5.9% in 2018 and gained 4.0%, 9.2% and 9.0% in 2016, 2017 and 2019. CoinDesk noted that leading non-crypto hedge funds have generated lifetime gains of 15% to 35%. Polychain declined to comment. Its hedge fund carries a lock-up of at least six months, a feature that CoinDesk said makes performance snapshots highly sensitive to monthly volatility and poses risk for investors who need shorter-term liquidity.
An analysis of 39 months of activity starting in September 2016 found the fund's return curve rose in 1 of 4 months in 2016, 10 of 12 months in 2017, 3 of 12 months in 2018 and 6 of 11 months in 2019. Negative months clustered in the final quarter of each year and in the first two quarters of 2018 and 2019. Monthly returns averaged a 7.1% gain. CoinDesk's calculations put the best six-month run at 529.5% and the worst at a 47.6% loss.
Per an accompanying investor deck, more than 20 crypto assets averaged $20 million positions each within the $550 million the fund controlled in Q4 2019. Half of the holdings were liquid coins trading on exchanges, and half were illiquid tokens bought through Simple Agreement for Future Tokens (SAFT) contracts. A SAFT treats a token as a security and freezes redemption until the underlying network becomes usable. Investors and issuers view SAFTs as a regulatory accommodation, but the SEC has not officially recognized them as a valid legal framework.
Polychain was founded in 2016 by Olaf Carlson-Wee, who serves as chief investment officer. Matt Perona is COO and CFO, and Joe Eagan is president. The hedge fund is the firm's first fund and runs in parallel with a venture capital arm. Investors include Andreessen Horowitz, Founders Fund, Sequoia Capital and Union Square Ventures. Polychain began raising $200 million for a second venture fund in 2019, and March 2019 SEC filings showed $595.1 million in aggregate holdings.
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