UK’s FCA steps forward to approve first cryptocurrency hedge fund

UK’s FCA steps forward to approve first cryptocurrency hedge fund

It is always nice to be first at something, and Prime Factor Capital Ltd., a London-based investment management firm, achieved this relatively unique status by becoming the first firm to receive the “green light” from the Financial Conduct Authority (FCA) for its crypto-focused hedge fund. The fund will also fall within the auspices of the EU’s “Alternative Investment Fund Manager” (AIFM) rules, which will allow it to have more than $100 million Euros of assets under management and target institutional investors.

Many institutional investors have deferred investing directly in crypto offerings, often due to the unregulated nature of exchanges and digital assets and the fear that various safeguards were absent in the marketplace. The preponderance of exchange compromises and fraudulent fund managers has also been a deterrent. Aware of these concerns, Prime Capital made a point of listing a number of these benefits in its press release: “Depositaries provide an additional layer of protection to investors by providing independent fund oversight, asset ownership verification, and cash flow monitoring.”

Prime Factor CEO Nic Niedermowwe labeled the licensing as “a significant milestone… for the industry as a whole.” He went on to elaborate that:

Being FCA-regulated brings us under the purview of one of the most recognised financial markets regulators globally. This is particularly relevant in the cryptocurrency space, which has repeatedly captured headlines for poor operating standards and even fraudulent activity. Investors need to be able to trust their managers not only to generate returns, but also to act responsibly and in their best interest.

Prime Factor Capital Ltd. has already established a reputation for serving institutional interests in the crypto space in two short years. The firm was founded in 2017 and has specialized in cryptocurrencies. The management team hails from such reputable firms as Blackrock, Legal & General, Goldman Sachs, and Deutsche Bank. Its investors include high net worth individuals, family offices, and private wealth managers.

Adam Grimsley, Prime Factor’s chief operating officer, noted in an interview with Bloomberg that:

Most vehicles for investing in cryptocurrencies are outside the scope of regulators and that’s a big problem in a market that has such a bad reputation. Full-scope AIFMs are subject to heightened transparency, disclosure and reporting requirements, in addition to a number of other obligations. We are pleased to be able to offer institutional investors with a suitable investment vehicle to deploy capital to this emerging asset class with its unique risk-return profile.

Crypto-focused hedge funds are not something new in the industry. Per one report by PricewaterhouseCoopers (PwC): “There are now more than 150 active crypto hedge funds, which collectively maintain around $1 billion in assets under management (AuM). More than 60 percent of these funds have less than $10 million in AuM with fewer than 10 percent managing over $50 million”.

Prime Factor may be only one member of an expanding and highly competitive field of crypto fund managers, but its offering will be the only one for the time being that can distinguish itself as having gained FCA approval.

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