Nick Dignam from Fortitude Investment Partners shares insights with Lachlan Maddock from Fortitude Investment Partners on how a diversified portfolio in mid-market private equity is structured. The Inside Adviser
The world of alternative investments is at a crossroads. As markets defy expectations and liquidity concerns take centre stage, investors find themselves forced to rethink how they deploy capital in an increasingly complex environment.
‘We are in the midst of a revolution in money, finance and culture’
We have already entered a new era (perhaps ‘the Crypto Age’) where large parts of our daily lives – work, social networks, financial capital, human interaction, entertainment, gaming, music, and artistic creativity, will be digitised (and increasingly tokenised) to be stored and exchanged on a blockchain.
That’s the view that Michael Armitage of Apollo Capital gave an audience of industry experts, fund managers, advisers and investors at Te Inside Network’s Alternatives Symposium, held last week in Melbourne.
Not many realise that Blockchain technology will fundamentally change the way financial services, industries and society operates. Armitage says, “we are in the midst of a revolution in money, finance, and culture that is in the early days of adoption and price discovery.” It is for these reasons that is has never been more important for financial advisers to commit the time to educate themselves and at least have a cursory understanding of the sector.
It’s the start of a new era, with new technologies like Web 3.0, Blockchain, NFT (non-fungible tokens), and DeFi (decentralised finance) all set to skyrocket in importance if implemented successfully. This has brought about the need to solve safekeeping of digital assets like cryptocurrencies and NFTs, which are worth billions. Recently, hackers stole about US$600 million in what appears to be one the largest cryptocurrency heists ever. Safe custody of crypto assets now pose the biggest risk to investors, accounting for roughly US$1.67 trillion in assets.
According to Craig Hobart, head of distribution at Monochrome Asset Management, there are a few pathways through which investors can access cryptocurrency, of which all advisers should be aware. These are exchanges, self-custody, proxy, managed investment scheme (MIS) or an exchange-traded fund (ETF). Each has its pros and cons.
Some investors use the hardware wallet or “cold storage” method which some say is a secure way of storing cryptocurrency. Stored on a piece of hardware similar to a USB key, it keeps your private keys offline – so your crypto is inaccessible to anyone but the holder of specific access codes. A “hot” wallet is always connected to the internet and cryptocurrency network. Hot wallets are used to send and receive cryptocurrency, and they allow you to view how many tokens you have available to use.
Many see this new era as an opportunity. Richard Galvin founded Digital Asset Capital Management in 2017, with a singular focus on investing global family office and institutional capital in digital assets. It was a time when digital assets weren’t as widely accepted and hadn’t gone mainstream.
The firm manages three strategies: venture, liquid long-only and market-neutral. The DACM Liquid Venture Fund is the #1 performing crypto fund globally since inception in 2018, and DACM’s Digital Asset Fund was the #1 performing long only fund globally in 2020 and 2021. According to Galvin, “Returns follow disruption/adoption so focus on sub-sectors where investments can grow from “concept-to-adoption.”
In conclusion, the technology is here to stay. Ignoring cryptocurrency and the blockchain technology era would be akin to ignoring the internet back in the 1990s. But in the same way as the dotcom boom got out of hand, there is a lot of market hype currently seen in NFTs, and potential catastrophic losses yet to come.
After it clears out, just like the quality tech giants of today, the strongest of this era will survive. Galvin finished by saying there is the “potential to be a $50 trillion-plus sector over the next decade.” As this digital revolution continues, he said, the brightest talent will flock to the sector and opportunities will present themselves.
