“The proper way to deploy capital in new companies, particularly a new technology like Blockchain and the ancillary digital assets it creates, is to diversify your bets across multiple opportunities and deploy that capital across multiple periods. This addresses the principal risks of investing, particularly in startups; non-systematic (transaction) risk, and systematic (timing, market, or thesis) risk. When investors understand the importance of proper portfolio architecture and management, they will have more confidence they can capture the asymmetric returns available.”
Andrew Hoppin
Joe Milam, September, 2023
Fund Overview
ChainLink Luna’s fund of funds structure represents a fusion of venture capital and liquidity, termed ‘Liquid VC.’ This strategy targets early-stage blockchain technologies, focusing less on market volatility and more on core business fundamentals.
Performance Metrics
As of July 2023, our Liquid VC strategy surpassed the CCi30 market index by 138.81 percent since its inception in February 2018.
Generating Alpha
Our primary goal is to deliver alpha – the potential to outperform industry benchmarks. We utilize the CCi30, a representation of the 30 largest cryptocurrencies, as our benchmark. To consistently achieve above-market returns, we avoid solely investing in dominant assets.
Options like market timing and strategies such as lending are considered. Yet, the most promising avenue is investing in early-stage teams and technologies, representing around 20 percent of the market beyond the CCi30 index. Unique to the blockchain, many early-stage projects offer quick liquidity post-launch due to the essential role of tradable tokens.
Fund structure and strategy given, our focus on early-stage investments, and active collaboration with entrepreneurs are crucial. We believe successful venture managers have focused portfolios, typically specializing in areas like blockchain infrastructure or decentralized finance. Our fund-of-funds structure lets us maintain a diverse Liquid VC portfolio, essential for achieving comprehensive sector-wide exposure.
Risk Management
Alpha Bitcoin and Ethereum account for about 75 percent of the total market capitalization of liquid digital assets. This dominance carries inherent risks, like Bitcoin's environmental concerns or Ethereum's regulatory challenges. Hence, our diversification strategy targets 25 percent of the market beyond these two giants. Our fund-of-funds approach provides exposure to over a hundred underlying assets, mitigating potential risks in this dynamic sector.
Corporate engagement inclusion of corporate equity in blockchain startups offers diversification in revenue models and adaptive strategies in shifting regulations.
Hedge Fund of Funds - Liquid VC: We are confident that focusing on the 20-25 percent of digital assets market cap outside of Bitcoin and Ethereum offers significant market outperformance potential. This conviction is rooted in our experience as a seasoned hedge fund of funds and is backed by third-party research.
To provide investors with optimized risk-adjusted returns in the blockchain tech and digital assets realm, our Liquid VC hedge fund of funds embodies the ideal strategy. The liquid hedge fund structure facilitates engagement with managers investing in smaller markets, which is essential for maximizing potential.
