Former bond specialists at BlackRock, Inc. (BLK) Michael Wong and Adam Grimsley have thrown in the towel on bond investing, hooking up with a third investor to launch a new bitcoin hedge fund dubbed Prime Factor Capital. According to Bloomberg, the new hedge fund will start trading cryptocurrencies in April.
While cryptocurrencies are volatile to say the least, it is hard to stand out in the bond market, which has prompted the launch of the new hedge fund. In an interview with Bloomberg, Grimsley said one of the allures of cryptocurrency is that it is not tied to a traditional asset class, something that can't be said of bonds. In the latter case, valuations are tied to the moves of central banks instead of an individual bond's performance. That makes it hard to differentiate from all the other bond funds out there. With cryptocurrencies, investors can get returns that are not correlated, he said.
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While bitcoin has lost some of its luster with investors, with the price declining since the end of the year, there is still a lot of interest in the cryptocurrency. Bitcoin started 2017 trading at around $1,000, surpassed $19,000 at one point and then preceded to decline by double digits at the end of last year. The cryptocurrency was recently trading around $11,000. Despite the volatility, according to Bloomberg, an increasing number of wealthy investors, family offices and institutions want access to cryptocurrencies. As a result, fund companies and independent firms are starting to create cryptocurrency funds to meet the demand.
The new hedge fund from the ex-BlackRock employees is in direct opposition to the stance of some executives at their former firm when it comes to cryptocurrencies. Recently, Mark Wiedman, head of iShares exchange-traded funds at BlackRock, told Bloomberg that he does not envision the company launching a bitcoin or digital currency ETF. Meanwhile, Belinda Boa, head of active investments for Asia-Pacific, said that bitcoin has "bubble-like valuations," reported Bloomberg.
While BlackRock is bristling at launching bitcoin funds, it is embracing technology – but more the robotic kind. In late November, citing filings with the Securities and Exchange Commission, Reuters reported that BlackRock is gearing up to launch a set of ETFs in which the holdings are chosen by a computer program rather than tracking an index. Dubbed iShares Evolved, the ETFs will focus on the financials, healthcare, media, consumer staples, technology and consumer discretionary industries. The ETFs will rely on machine learning to choose which companies are included. Reuters noted that BlackRock, which has $6 trillion in assets under management, has long used machine learning and advanced data science techniques for its actively managed funds geared toward institutional investors. However, it has increasingly been bringing those technologies to the masses.
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