Did you know? A pension fund named Virginia’s Police Officer’s Retirement System has exposure to a crypto-focused fund – the Morgan Vreek Blockchain Opportunities Fund. This is one instance of institutional investing. Portfolio management involves ideating the right set of assets for your funds. Consider this the process of choosing the right ingredients for the dish that is the hedge fund. Note that hedge funds are often good at making predictions.

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We all remember how deep the U.S. As for the current regulatory landscape, the crypto hedge funds in the U.S. The currently functional ones are awaiting regulatory clarity to become commonplace across the crypto space. 13% of the hedge funds shut shop. At the issuer level, the state and SEC regulate the investment, whereas, at the adviser level, the onus is on the CFTC, SEC, or neither, depending on the type of assets the fund is invested in.

But then, risk management strategies can differ depending on the alpha generation strategies a given fund employs. Capital allocation in a crypto hedge fund: how to get the ball rolling? A good risk management strategy could be to diversify across diverse exchanges to lower platform-specific dependency. From setting up arbitrage positions to indulging in simple crypto trading, the fund manager should gauge the possibilities and act accordingly. Market analysis aims to analyze the breeze flowing through the crypto space. For instance, if an arbitrage-focused hedge fund is in sight, the fund manager must account for exchange risks, including downtime concerns and more. This might involve reading about key events, doing a broader market sentiment analysis, and evaluating the investment and capital flow.

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Even though the SEC has an active role to play in the regulation of crypto hedge funds, the standards aren’t as stringent as other funds like an ETF. Per PWC’s detailed report on the state of crypto hedge funds in 2023, only 4% of respondents feel that the new wave of regulations, if and when it arrives, will need them to change the existing custodians – bodies associated with loss prevention.

Passive hedge funds in crypto are usually index-driven.

Other strategies relevant to active funds include arbitrage and event-based alpha generation. They usually have higher overheads as the focus is always on higher returns. They usually attract lower fees and are less prone to outperforming the market compared to active funds. Passive hedge funds in crypto are usually index-driven. In addition to being active and passive, there are other hedge fund types to consider. For instance, there might be hedge funds that would only allocate capital to metaverse and DeFi indices. The portfolio management strategy relevant to passive crypto hedge funds often mirrors indices and not the underlying cryptos.

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