The Sophisticated Management Techniques Behind A Crypto Fund

pentacore

Did the adoption of blockchain technology and cryptocurrency growth lure you in, inspiring you to look for an effective investment strategy? Are you looking to gain diversified exposure to the asset class or a portfolio that can make you money in a bull market and protect your funds in a bear market? Well, we may have found a product for you that claims to do just that.

In an interview with Ralph Cimmino and Robert Karpel, COO and Co-founder of PentaCore respectively, you’ll have the chance to get a grasp on the sophisticated portfolio management techniques that they’re using for PentaFund. They tell you how they are managing to keep up-to-date on trading strategies, and they’ll even reveal the most important tips to overcome the many obstacles that come with entering the cryptomarket!

Hi, Ralph! You have an astonishing experience of more than 20 years in top-tier investment banks and hedge funds. Can you start by telling us about the achievements that you are most proud of?

The achievement I am most proud of in my career is my record of having over a decade of continual profitability as a hedge fund portfolio manager through some of the most volatile periods in financial history. It’s a streak that I plan to defend with PentaFund. Profitably managing investor assets in volatile periods is my specialty.

Hi, Robert! After almost a decade in the business world, being a sales leader and helping four tech startups find success, can you tell us what is still driving you to deliver meaningful solutions for people’s needs?

Right now, we are living in an exciting time where new technologies are popping up everyday. A common problem that often goes unsolved is the disconnect between the technology and the end user. I have always taken an interest in helping bridge that gap by applying my own experiences to help ease the process for others. Cryptocurrency came on the scene in a flurry, and as billions of dollars was poured into the space I realized very quickly that there would be a need for professional asset management.

We recently had an interview with Sina Nader, who was previously an asset manager at Morgan Stanley and Credit Suisse. He said, “Wall Street traders and investment professionals have been looking at Bitcoin since 2013, and some have even invested in it that early.” Is this true for you? How did you first become acquainted with blockchain technologies?

Ralph: I was first acquainted with the blockchain in 2013 as well. Once adoption started to grow, many asset managers took notice and became intrigued by the possibilities of the blockchain and cryptocurrencies as an alternative to the highly regulated banking system.

Many asset managers became intrigued by the possibilities of cryptocurrencies as an alternative to the highly regulated banking system – Ralph Cimmino Click To Tweet

Does managing a crypto portfolio differ from managing traditional assets? Is it even possible to construct a crypto portfolio with risks close to those of, let’s say, the S&P 500?

Ralph: Managing all financial assets have several common characteristics that need to be evaluated to successfully create a viable strategy to manage them. First and foremost, one must define what their goal is when creating the portfolio. Do you want to get diversified exposure to the asset class or do you want a portfolio that tries to make money in both bearish and bullish markets? We believe that investors can gain inexpensive exposure to crypto assets by buying into an index fund, but with PentaFund we intend to profit in both bull and bear markets by not having a preset directional bias.

S&P 500

Some of the most important factors we look at are fundamental value, liquidity, relative value, and correlation. By closely studying these investment factors, we use sophisticated portfolio management techniques to create portfolios that maximize returns while minimizing risk.

How does managing an individual portfolio differ from managing a fund?

Ralph: Managing an individual portfolio versus a fund allows the manager to focus on their specific asset class or trading strategy as opposed to coordinating a complex combination of strategies that requires sophisticated risk management techniques. As CIO of PentaCore, I intend to manage the overall fund, while our carefully selected traders will be allocated a portion of the fund to run individual portfolios.

pentafund

Can you tell us about PentaFund? What is it?

Robert: PentaFund is a crypto hedge fund that issues its own Ethereum-based ERC20 token (PENT), allowing investors to purchase fractional ownership in the underlying assets of the fund. Each token will be sold for the equivalent of 1 US dollar during the initial 30-day token sale. Many projects in the space are allocating a large sum of their tokens to the founders, advisors, and team. With PentaFund, 100% of all tokens will be sold to investors on an even playing field; no bonuses, pre-sales, or private sale discounts. Additionally, all funds raised and the net management fee will serve as the starting net asset value of the fund. Our 20% performance fee is only paid when our investors make money as well. This insures that our goals are completely aligned to that of our investors.

PentaFund’s performance fee is only paid when investors are making money as well – Robert Karpel Click To Tweet

PentaFund is the first tokenized crypto fund that allows clients to redeem a portion of their holdings directly from the fund, making it so that investors are not completely reliant on a secondary market for liquidity.  Through our PentaCore Redemption Smart Contract, the fund allows its investors to withdraw up to 10% of the fund’s holdings every quarter. Investors will also have the ability to trade with other PENT holders through a trustless, no-fee escrow by utilizing PentaCore’s Distributed Autonomous Exchange. PentaFund’s strategy is to deliver superior risk adjusted returns in the crypto asset class, that are uncorrelated to any market benchmark.

Ralph, as the CIO of PentaCore, what are your responsibilities, and why did you choose to get into PentaCore?

Ralph: Currently, as Chief Investment Officer of PentaCore I am ultimately responsible for the performance of the PentaFund, our first crypto asset management offering. I chose PentaCore because the founders and I have a common vision of creating the preeminent asset management company in the crypto space.

warren buffet10 years ago, Warren Buffett made a bet with Protege Partners that over the course of 10 years, the S&P 500 will significantly outperform the portfolios managed by professional asset managers and, as we all probably know, Buffet won. It is rumored that in 2018, we will see the emergence of index funds in the cryptocurrency markets. The question is, why is it that investment funds may still be a superior choice?

Ralph: I agree with Warren Buffet that index funds will generally outperform long-only asset managers who believe they can consistently outperform their respective markets. That is not the goal of PentaFund. We are an all-weather asset management vehicle that will attempt to make money in all market environments. For example, if the crypto index is down 25% and  an actively managed crypto fund is only down 10% then we would feel like heros. At PentaFund, our compensation is directly related to the amount of money we make for our investors. If our fund is down 10% in the above scenario then we get zero incentive fees.

PentaFund is an all-weather asset management vehicle that will attempt to make money in all market environments – Ralph Cimmino Click To Tweet

As far as I understand, the PentaCore fund is completely publicly funded, but you also plan to establish an additional fund solely for institutional investors. Do you plan to differentiate them?

Ralph: US regulations have made it inhospitable for asset managers like PentaCore to create a tokenized fund to manage crypto assets for US residents. Our plan is to offer a hedge fund vehicle in the future that will allow certain US investors to participate in a vehicle that will be virtually identical to the PentaFund.

You say that one of PentaCore’s advantages is ease of entry. Do you provide a fiat gateway for investors? Do you comply with KYC/AML policies? Can you talk about what barriers for investors can exist, and how do you make it easier for them to get in?

Robert: Our idea of “ease of entry” is that we are providing a sound investment opportunity for the crypto asset class where investors don’t have to worry about all of the nuances that come along with this space. Vetting thousands of projects, identifying scams, avoiding being on the wrong side of price manipulation, and navigating different exchanges are just some of the many challenges that must be faced when entering this market. We have created a user-friendly platform that guides prospective investors through an intuitive process to purchase PENT.  

shapeshiftWe have also integrated Shapeshift into our buying process, thus allowing investors to easily convert a variety of crypto assets into ETH to purchase PENT. Investors can also utilize Changelly, which provides a fiat gateway and various other methods of payment. Lastly, investors that wish to purchase $25,000 or more worth of PENT tokens can contact us directly.

Vetting thousands of projects, identifying scams, and navigating different exchanges are just some of the many challenges you must face when entering the cryptomarket – Robert Karpel Click To Tweet

PentaCore is working with four law firms and a fund administrator while also partnering with  Identity Mind, a trusted third-party verification software that ensures full compliance to all regulations. Identity Mind assists with the onboarding of new investors, providing an interface to upload identification and proof of residency. We have gone to great lengths to insure that we are compliant with all regulations today, and we will continue to do so on an ongoing basis.

Can you explain how easy it is to withdraw investments? How will your tokens achieve high-liquidity?

Ralph: Investors will be able to access liquidity in three ways:

1) By trading out of the PentaCore Token on any exchange that lists the PENT token.

2) By offering to redeem their coins at the net asset value (NAV) of our fund during the quarterly redemption periods.

3) Utilizing the trustless escrow distributed autonomous exchange, which will be out later this year.

How would PentaFund’s strategy change if a massive crypto recession happened?

Ralph: PentaFund positions itself to be able to take advantage of both bear and bull markets. To stress this point further, PentaFund has no inherent directional bias. We seek to make money in all market environments and protect investor assets against adverse moves in crypto.

Pentafund also plans to use arbitrage strategies. How much can one earn when using arbitrage opportunities?

Ralph: The availability of arbitrage opportunities is hard to gauge since economic literature teaches us that they should not exist in the first place. The reality of the matter is that they do frequently exist in the crypto world. This occurs for a variety of reasons outside the scope of this discussion. We have observed that in emerging and volatile markets, arbitrage opportunities are more plentiful.

In emerging and volatile markets arbitrage opportunities are more plentiful – Ralph Cimmino Click To Tweet

How can a fund be perfectly transparent, and how are you going to achieve this?

Ralph: The PentaFund intends to post periodic snapshots of our holdings, as well as a determination of the NAV of the fund on an ongoing basis so that investors can more accurately and transparently evaluate the value of their tokens. The value of our token should be directly related to the underlying value of our holdings.

bull&bear markets

Your white paper says that, through Pentaview, investors will be able to make suggestions to portfolio management. Do they have power to actually influence the decision-making process? For example, if investors decide to make investment more aggressive, will you hear them out?

Ralph: We view our investors as our customers. We would be ill-advised not to take their suggestions seriously. The PentaFund will make decisions based on the best interests of all investors in the fund. Since our compensation is based on our performance on behalf of investors, our interests are strongly aligned.

Can you tell us about PentaPost? What is the goal of this project? Am I right that it will be distributed for free, but that only Pentafund investors will get access to premium material?

Robert: PentaPost will be a place where all PentaFund investors can come together and discuss various topics related to cryptocurrency. The PentaFund traders will be active in this forum, offering our investors the opportunity to interact with them. There will also be a fully autonomous distributed exchange where our token holders can buy and sell PENT tokens amongst each other at an agreed-upon price. This smart contract will serve as a trustless escrow where individuals can trade PENT in between redemption periods as another avenue to provide more liquidity for our investors.

Security of assets is essential for any fund and even more important for a crypto fund. How do you plan to protect PentaFund’s assets?

Robert: As you can imagine, the security of funds for PentaFund is our highest priority, right up there with producing positive returns. We are utilizing Gnosis MultiSig Wallets in addition to BitGo’s MultiSig wallets which enable rule sets requiring multiple signers for the movement of funds. We are all using both Trezors and Ledger hardware wallets when possible. Our experienced technology team is constantly monitoring the best practices to ensure the security of all funds held by PentaCore. The technologies used by PentaFund are also used by some of the largest cryptocurrency exchanges and various financial institutions.

Can you tell us the basics of an effective investment strategy?

Ralph: The best way to build an effective investment strategy is to first understand what you goal is. Our goal at PentaFund is to maximize risk adjusted returns. Once your goal is set, certain realities emerge. In the case of PentaFund, the first implication of the goal is that we want to make returns in all markets. This means we need to evaluate positions form both the long and short side and create a strategy that effectively allows us the opportunity to make money under many expected scenarios.

The best way to build an effective investment strategy is to first understand what you goal is – Ralph Cimmino Click To Tweet

How are you keeping up-to-date with the latest strategies to offer the best profits?

Ralph: The best way keep up-to-date on trading strategies is to look to what fund managers are using in other markets. Many strategies that work in traditional assets, like FX or algorithmic trading, can potentially be applied to crypto. The best way to assess whether these strategies work is to back test the crypto trading data whenever possible.

trading strategies

Do you read any blogs or websites that are useful for your personal development?

Ralph: As an active trader, I try to look at as many blogs and websites as I can. Over time you get realize which blogs are more effective for different types of information. Part of the education of becoming a professional trader is to have a strong grasp on what events will move the market and whether the move is warranted. Some of the best trading opportunities come during these events.

Can you recommend any courses you’ve taken to improve your understanding of the blockchain and DLT?

Robert: We are in the process of putting together our own courses at the moment and we are currently using a variety of sources for information. I do not believe it is wise to get all of your information from one place, so my advice is this: when you read something, always look to additional sources to validate your research. Be conscious of all of the fake material out there, keep your guard up, and be a sponge for information. Once you check the information for accuracy, check it again!  

Be conscious of all of the fake material out there, keep your guard up, and be a sponge for information – Robert Karpel Click To Tweet

What advice would you give to someone who wants to begin trading in crypto?

Robert: I think many individuals who were fortunate enough to enter the space in the summer of 2017 and rode the wave up through December have adopted a mindset of, “Since I made money, I must know what I am doing.” If you don’t trade stocks on your own, then you probably shouldn’t be trading cryptocurrencies on your own either. This is a financial market just like any other, and there is a vast learning curve. It takes ample time to develop strategy, technique, and proper risk management, and even then your not necessarily in the clear. If you insist on doing it on your own then do not put in more money then you are willing to comfortably lose. Trading on emotions is a very dangerous game.

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