Prime Factor Capital Ltd., a crypto hedge fund manager, set up by former employees of BlackRock, has shuttered all operations as the retail-driven market failed to convince institutional investors to jump in. The news was first reported by Financial News.
Prime Factor Capital was the first crypto hedge fund to win the stamp of approval from the Financial Conduct Authority. It was approved by UK regulators as a full-scope alternative investment fund manager back in 2018.
Though approved by the UK watchdog, 2019 was quite tough for Prime Factor Capital and other crypto-related hedge funds. The firm was allowed to hold more than 100 million euros in assets under management, but sources told Financial News that Prime Factor had struggled to raise new funds. It has also failed to sell its fund management license to another cryptocurrency firm as performance in the sector swung more wildly than in other markets.
“We can confirm that the fund, despite having delivered an average monthly performance in excess of 4%, is being wound down due to insufficient demand from institutional investors,” said Nic Niedermowwe, Prime Factor’s chief executive.
Crypto-focused funds in March had seen their second-worst monthly loss in nearly five years, having lost 27 percent on average. This compares to less than ten average loss suffered by mainstream hedge funds.
Bear market is putting pressure
Investors have been drawn to digital asset hedge funds by the promise of a big recovery earlier this year, but achieving stable returns proved a bumpy ride as regular swings led to large losses and some fund closures.
Crypto firms have turned to venture capitalists and relevant hedge funds over the past few years as the collapse in digital asset values in 2018 has made new investments through ICOs, which were once plentiful, drying up for blockchain-related startups. Retail investors who poured money into crypto assets in 2017, seeking to benefit from a sector-wide boom, were trying to head for the exits — prompting funds to find other alternatives to stay the course.
If the latest trend continues, a cryptocurrency-focused, semi-institutional investments vehicles could also be on the way out. According to Crypto Fund Research, more than 70 hedge funds specializing in investments into digital asset projects closed in 2019.