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Is There Any “Hedge” In Your Cryptocurrency Hedge Fund?

There is a rush of hedge funds entering the Cryptocurrency space. According to the New York Times, more than 100 cryptocurrency hedge funds are now in existence, with most created within the last several months.  And no doubt more are on the way.

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Cryptocurrency Hedge Fund
geralt / Pixabay

But those researching the new cryptocurrency hedge funds might be reminded of the old Wall Street sarcasm that “Hedge funds are a compensation scheme masquerading as an asset class.”

Like most hedge funds, the new cryptocurrency funds charge a management fee (typically 2% of assets under management ) in addition to an incentive fee, sometimes called a performance fee. Most cryptocurrency hedge funds are charging “standard” 2 and 20 management and incentive fees, but some are charging 30% or more if performance is especially good.

Such fees may seem steep, but for many high-net-worth investors, placing money with an astute cryptocurrency hedge fund manager who will navigate the volatile crypto markets may be a smart move. A crypto hedge fund could be well worth the incentive fees.

But here’s the thing -- you probably want to place money with a TRUE hedge fund, not a “compensation scheme masquerading as a hedge fund”.

What’s a TRUE hedge fund, you ask?

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