The aim of the MHC Market Neutral Fund is to secure outsized, market neutral returns from a diversified portfolio of investments which take advantage of pricing anomalies occurring in the cryptocurrency markets. As with all new markets which are dominated by retail investors, pricing inefficiencies appear. These inefficiencies can be exploited by those able to use derivatives transactions and protocol analysis to produce outsized risk adjusted returns without taking directional exposure to the market as a whole.
Initially set up as a proprietary trading desk to invest our own money, we are now inviting a limited number of investors to put their money to work alongside us through the MHC Digital Market Neutral Fund. Though the returns will not match those in a crypto bull market, we believe we can extract excess returns of at least 15% no matter how the crypto market performs.
To achieve this, we are focused on two buckets of investment:
Large Cap Liquid Coins (40-65% of the portfolio)
Macro Exposure The fund will invest a significant proportion of the portfolio in coins with a market cap greater than USD$1bn. This gives the portfolio diversified exposure to the crypto market as a whole, with the objective to outperform the returns of the overall crypto market.
Market Neutral Staking and Derivatives Arbitrage (25-45% of the portfolio)
Pricing Arbitrage This component of the portfolio aims to take advantage of pricing anomalies in derivatives (futures and options) markets and also provides liquidity to market makers to capture a stable return in excess of 15%, no matter the directional moves in the market as a whole. This is the part of the portfolio that aims to generate outsized returns while insulating it from the dramatic moves regularly observed in this market.
New Coin Investments (10-15% of the portfolio)
This portion of the portfolio will be invested in early-stage digital assets that we believe have the potential to produce extreme returns, offsetting those which do not realise their potential.
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With retail investors willing to pay more to get leverage in this new market, futures and options have become mispriced. Using a combination of cash positions and derivatives, we believe we can capture the mispricing without taking exposure to the overall market. These opportunities will persist until large balance sheet players commit capital to this opportunity and invest the opportunity away. Until that time, we aim to make outsized returns from this strategy.
Through a deep analysis of blockchain protocols, we believe we can extract outsized returns from providing liquidity to technology-based market makers of stable coins. The key to success here is understanding the technology behind the protocols and the breadth of the community using them. The returns on these investments provide an outstanding risk-return and are not affected by directional moves in the market. When staking, we use bots to liquidate yields automatically when paid to insulate ourselves from market moves.
As a proprietary trading desk, we aim to identify pricing anomalies which may appear in many shapes and forms and put money to work to monetise those inefficiencies. We will not, however, take directional views on the market and will not use leverage.
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The Trustee of the MHC Digital Asset Fund is MHC Digital Fund Services Pty Limited. The Trustee of the MHC Digital Market Neutral Fund is MHC Digital Fund Services B Pty Limited. The Manager of the two funds is MHC Digital Finance Pty Limited. Each of these entities is an Authorised Representative of M H Carnegie & Co Limited AFSL 411216. APIR Code MHCX826AU. © 2021 All Rights Reserved.