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Performance Update April

Dear Clients and Partners,

The month of April brought a lot of pain to the markets and overall worries that we are heading into a recession. This is signaled by the continuing war in the Ukraine, fears of energy and general commodity shortages, and China shutting down entire cities as part of their zero COVID policies affecting supply chains. We continue to see an unwinding of loose monetary policy and are coming to the sobering realization that Modern Monetary Theory might just have a negative side effect after all. This was especially seen on the tech side as the NASDAQ had its worst month since 2008, losing -13.37% in April. Digital assets suffered as well, with BTC down -16.24% and BGCI losing -19.56%. The ripple effects are now being felt in the private markets where, for example, the Refinitiv Venture Capital Index lost -24.22% in April, and -45.77% YTD. Currently, digital assets are not acting the part of an uncorrelated asset as they have in the past, and we expect this to continue for a while.

Moving into May, carnage continued with BTC currently down by -23% and having hit the USD 26k mark, while BCGI is down by -28%. This month was dominated by the recent massive depegging of a major algorithmic stablecoin UST (Terra), which stemmed from what appears to have been a coordinated attack. Following this event, USDT (Tether) also had its moments of depegging. This action had a devastating effect on investors and consumers who were saving in or running stablecoin portfolios with the belief they were operating a conservative and “market neutral” strategy. For us, it continues to be a reason why we haven’t, at least thus far, invested in DeFi, yield-generating strategies, as the technical and operational risks are large in comparison to the potential return. We wrote about the associated risks and opportunities within the DeFi space in this Cointelegraph article you can find here.

In the wake of the collapse of UST (Terra), the associated blockchain token LUNA, the quasi equity of the “bank” issuing UST, also collapsed. We had some exposure to LUNA through one of our aggressive/offensive investment managers, but that has since been closed. While this didn’t turn out the way we wanted it to, it ultimately had a limited negative performance impact for us as it was a small position compared to our overall portfolio.

For April 2022, we were down by -3.72%. Our aggressive/offensive strategy components suffered to various degrees, as they largely remained invested in projects where they have strong long term convictions in, ranging from the large to smaller cap projects across different sectors. Our midfield and defensive positions were able to hold the line thanks to higher cash positions while waiting for more sustainable buying opportunities, and having focused allocations on more stable (relatively speaking) investments such as BTC and ETH (vs altcoins), which in turn allowed for better hedging opportunities. While this environment, at least in the short term, is challenging our strategy, we continue to provide downside protection thanks to our portfolio construction, while having our offensive investments “market ready” for when a reversal will come again. These can come quickly and violently to both the up- and down-side, whereas we do believe, given the general macro backdrop, we need to exhibit patience for the next swings to the upside to come.

Have a great day and feel free to let us know if you have any questions.

Marc S. on behalf of Frank, Dirk, and Marc B.

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