A new fund-of-funds announced this week is aiming to raise up to $100 million via an initial coin offering (ICO).
Called the Apex Token Fund, the key idea is that tokenization gives buyers a way to cash out their investment early on, without diminishing the underlying principle.
Speaking exclusively to CoinDesk in a telephone call, Joseph Bradley, a fund co-founder, said:
“The whole idea of applying a blockchain to this type of structure is it unlocks liquidity between the vintage and harvest date of raising the fund.”
Under the scheme, each token will represent a proportional piece of equity in the fund. Once the tokens are distributed to investors, they can start trading those tokens on exchanges. If one of the underlying funds spikes or drops in value and an investor wants to exit their position, they can do so without the need to follow the lockup rules typical at traditional hedge funds.
The fund tentatively plans to run a presale of the token – also called Apex – sometime in January, with a public sale in February. The fund will launch if a minimum of $25 million is raised, and has a hard cap of $100 million.
Apex Token Fund representatives declined to disclose which funds it has secured access to so far.
‘Democratization of access’
Domiciled in the British Virgin Isles, U.S. investors will be excluded from holding Apex. There are more than 120 crypto hedge funds out there at this point, according to CNBC, including several funds-of-funds.
In fact, Bradley and Chris Keshian (another co-founder) also built Neural Capital, another crypto fund that launched in December 2016. They set up the new fund after realizing that many mainstream crypto investors have been excluded from the best performing hedge funds, limiting access to high-net-worth individuals.
“The idea behind this democratization of access is to allow your average crypto holders to gain exposure to these fund returns through these tokenized methods … We also saw this space where a lot of people are investing in ICOs. They aren’t necessarily investing because they believe in the technology. They are investing for these non-linear returns.”
While the returns can be large, crypto investors know the price volatility can be stomach-turning.
“You can smooth out volatility by having a diversified investment approach in different investment strategies,” Keshian said.
To this end, Apex will provide a balance of funds focused on price arbitrage, protocol focus, sentiment analysis and other strategies.
The first Apex Token Fund will eventually sunset, divesting from all of the underlying funds, at which point token holders will then be able to redeem their tokens for a proportional quantity of fiat currency. As tokens are redeemed, they will be destroyed until the fund is wound down completely.
By then, other Apex funds are planned to have launched.
“We plan to do this in a number of capacities,” Keshian said. The fund model will remain crypto-focused early on, but could take on other verticals later, he indicated.
Rather than take out fees over the life of the fund, the Apex team will allocate 15 percent of the total pool of tokens as its management fee.
Bradley said, “What we’re really trying to do is lock that percentage in upfront and push as much value back to the token holders as we can.”