13 ms·

Former Harvard Money Manager Is Launching a Digital-Currency Hedge Fund

143 points by panarky 9y ago

code4tee 9y ago
The Harvard endowment has suffered from poor management recently so not sure if the headline is intended to make sure people think this is a good or bad idea
- audiometry 9y ago
  Yeah, this is interesting. They mentioned some turnover at the fund, and this guy in particular only lasted for a couple years at Harvard. I recall a few years ago how people talked about Harvard fund mgmt in reverent tones as if they somehow were simply smarter and better than everyone else. That caused some dissonance with me because a former boss's boss was someone who Harvard Endowment hired, and in my experience he was definitely not smarter and better trader than everyone else. So I guess over time they find it as difficult to make returns as the rest of us do.
adamnemecek 9y ago
> The fund, which is registered in the Cayman Islands Probably because of the beaches, pina coladas and what not, riteguise?
- fnord123 9y ago
  Probably because of the favourable taxation jurisdiction. Capital is very mobile and not there's usually not a strong reason to keep it in high tax jurisdictions if it's possible to move it out. Of course, it should have been taxed when it was earned by investors. And it will be taxed again when investors receive and domesticate any dividends. That part is the dodgy tax dodging issue. Not the issue of where the fund is based.
  - overcast 9y ago
    You don't say?!
  - adamnemecek 9y ago
    I'm well aware of Cayman Islands taxes. > Capital is very mobile and not there's usually not a strong reason to keep it in high tax jurisdictions if it's possible to move it out. They are exploiting a loop hole.
    - sabalaba 9y ago
      From the perspective of taxpayers, having nations compete for the lowest taxes and most friendly regulatory environment is beneficial. If there were a global territorial monopoly on the production of security and rule of law, you would likely find yourself with a lower quality of life.
      - adamnemecek 9y ago
        The problem is that I (and possibly you idk) can't decide to start paying taxes in Cayman islands while still residing in the US. Why should a hedge fund be allowed to do that? Why should a hedge fund that takes advantage of the US social structure (funded by taxes) be allowed to not pay taxes in the US?
        hendzen 9y ago
        The employees of the fund, who reside in the US presumably, will be taxed on the income they earn from the fund. Why should they be taxed twice? Google & Apple, etc play the same jurisdictional tricks, as do pretty much all multinational firms.
        adamnemecek 9y ago
        > The employees of the fund, who reside in the US presumably, will be taxed on the income they earn from the fund. Why should they be taxed twice? Why should it be the employees getting taxed and not the corporation? I might get taxed more than twice. Federal income tax, state income tax, sales tax, capital income tax, why should a corporation get a pass? I also don't think that it's getting taxed twice as they are different taxes. > Google & Apple, etc play the same jurisdictional tricks, as do pretty much all multinational firms. Why are you assuming that I condone that?
- whatok 9y ago
  Or maybe because some non-taxable US-based investors only invest in offshore vehicles.
- SkyMarshal 9y ago
  It's also offshore b/c non-US ICO's don't want exposure to "SEC risk" due to taking money from US investors. The fund will lose potential deal flow if it's US-based. This is a concern in the industry right now.
  - branchless 9y ago
    It's not in the USA because of that. But it's in the UK because they don't prosecute any financial crimes.
  - aphextron 9y ago
    >It's also offshore b/c non-US ICO's don't want exposure to "SEC risk" Can't be dealing with all those pesky "laws"!
    - mhluongo 9y ago
      The rest of the world has laws too. International banks and other players in finance also struggle with the regulatory burden that comes with accepting US customers.
- TimPC 9y ago
  If people want to start this fund in the US, I think the bigger question is it's not completely clear what the taxes are and how they work for cryptocurrencies, etc. In this case while Cayman tax rates are highly favorable, it's not clear how much of a factor that is, and how much of a factor just not knowing which instruments count as which type of investment and what the taxes actually are is. If you pay out to your clients then find out one investment was misclassified because of later regulatory clarification then you can easily end up having failed to withhold millions of dollars with severe legal consequences. Very few of the people moving money to the Cayman pay $0 in taxes because returning the money to the US is subject to tax events and it takes very complicated legal structures like those in Ireland or Netherlands to get money in the Cayman to not be double taxed since the US and Cayman don't actually have a tax treaty.
  - delazeur 9y ago
    This is also why U.S. companies like to incorporate in Delaware – it's not that the laws and regulations are favorable, it's that the laws and regulations are well known and predictable.
- Clubber 9y ago
  Hey, if this catches on, it could be the next great economic collapse!
- lordnacho 9y ago
  Hedge fund guy here. Every hedge fund is registered in some obscure offshore location. Don't confuse that with where it's managed from. The reason is tax related. The investors don't want a tax bill dependent on some complicated local regime, and you want investors from different countries. That doesn't mean there's never any tax paid, it the company that "advises" or manages the fund will still be based in a well known financial centre like NYC or London, and will pay all the same corporate and employment related taxes that any other firm pays. The 2/20 fee goes to this management firm. And when the investors bring their money back into their jurisdiction, they pay according to whatever the capital gains regime that's relevant.
  - TrickyRick 9y ago
    I think that's exactly what the joke was about...
    - lordnacho 9y ago
      He heavily implied there was some sort of illegitimate reason behind it. There isn't.
      - irishasaurus 9y ago
        I would argue avoiding taxes from the country where the fund is managed is a bit illegitimate.
        lordnacho 9y ago
        That's what I just explained doesn't happen.
        irishasaurus 9y ago
        So the fund is managed in the Caymen Islands?
discombobulate 9y ago
Digital currencies like M-Pesa & Paypal?... Oh, no he seems to be buying crypto assets; which have value because they're decentralised. Silly me. I was confused by the author being confused. Edit: if you're downvoting me for this comment then you don't know what you're talking about. Happy to debate! Edit2: seriously, there's a distinction to be made. One is a censorship resist asset (which is why the trade-off of greater resources is made) & the other isn't. Edit3: explain to me why that isn't true & I'll change my position!
- dpflan 9y ago
  Seems like a good opportunity to explain why "that is true". I'm curious what you're thinking.
  - discombobulate 9y ago
    Each asset can be looked at in terms of use cases. Bitcoin is the first crypto asset. The currency use case. Etherium is a generalised platform -- computing. Others have been created or are in the works. For any given use case I believe the solution could be done more efficiently with traditional tech. What traditional tech doesn't do is provide resistance to censorship. Governments can take them down. Currencies, social networks, whatever. The raison d'être of crypto is to provide this resilience. That's what the extra resources go to. Crypto is valuable because it's a more resilience-whatever. E.g., Bitcoin is a more resilient money (Monero is better b/c it's private). Assets which can be taken have less value. Platforms which require permission have less innovation. That's the quick answer.
- gedrap 9y ago
  > if you're downvoting me for this comment then you don't know what you're talking about. Happy to debate! Well, it's just that it's fairly obvious what is meant by the headline given the events of the past couple of years and your comment doesn't add anything.
  - discombobulate 9y ago
    The words are wrong. The definitions are incorrect. If you don't know the difference then it does add something. That's called ignorance on your part. I've explained the difference. Edit: & it makes a difference b/c one implies government control & the other control by the individual. Individual freedom. Privacy. Saftey from persecution. Allowing freedom of speech -- without the risk of being defunded by the government. Edit2: Thank you for your comment.
singhrac 9y ago
I would call "former Harvard money manager" an anti-pedigree given its gross incompetence this past year.
discombobulate 9y ago
Ari Paul[0] helped run a 75B fund. This isn't particularly new. The clumpy writer should probably sit down & figure out what's going on before shouting from the rooftop. [0] https://twitter.com/aridavidpaul?lang=en https://twitter.com/aridavidpaul?lang=en Edit: Here are 15 more hedge funds for the klutz. Please old media: keep up! Would quite like NEWs. https://www.forbes.com/sites/laurashin/2017/07/12/crypto-boom-15-new-hedge-funds-want-in-on-84000-returns/amp/ https://www.forbes.com/sites/laurashin/2017/07/12/crypto-boo... Edit2: dpflan, I think I'm being throttled b/c of my VPN. Here's how I see it; Personally, I think bitcoins will still increase, but the bet is more symmetrical. There are other crypto assets which are asymmetrical bets (lose 1x, gain 100x). I focus on the latter.
- dpflan 9y ago
  This is a gem: https://twitter.com/GlobeSvcs/status/897666132705988609 https://twitter.com/GlobeSvcs/status/897666132705988609 What do others think about Bitcoin's value changes and BTC as an investment? (Or the missed opportunity of investing in fidget spinners :)!)
  - Rmilb 9y ago
    The value proposition has always been that if it can succeed success being defined as being one of the major crypto currencies to see adoption, then just taking 1% of the global gold market, black market transactions, and remittances; its worth around 5k-ish already. I would consider it a gamble and not an investment. Some call it a new asset class that isn't correlated to other assets, which is valued by portfolio managers. Its high risk high reward, if you understand why it has value and want exposure to the risk, put in enough that you are fine losing. This is still a grand social experiment and still could plummet in price at ANY time.The government regulatory clarification we have seen over the past few years has lessened the risk of a government crackdown at least. This is not financial advice.
- ribosometronome 9y ago
  >There are other crypto assets which are asymmetrical bets (lose 1x, gain 100x) Such as? Eth isn't going to increase 100x in any meaningful amount of time at it's current price.
sremani 9y ago
A quick search on interwebs yielded this advice, >>If you will invest in a hedge fund, or require maximum transparency and regulatory agencies, I usually recommend Cayman Islands or Luxembourg.<< edit: the point of the post, is more or less answer to my own question. Why cayman instead of Panama or some other place. May be I am not clear about it in the post.
- Havoc 9y ago
  For those not familiar with offshore lingo, transparency here means the legal structure is essentially "look-through" almost as if you owned the underlying investments. It's not transparency as in freedom of info.
xefer 9y ago
Why would Harvard let these people go only to turn around and pay them fees to invest their money as a separate entity?
mysterydip 9y ago
I misread the title as "is laundering a digital-currency hedge fund." While a funny mental slip, on second thought it might not end up far from the truth given some of the coin news the past few months.
- discombobulate 9y ago
  Funny how biases play on our interpretation of the world.
  - ben_jones 9y ago
    Biases or the likelihood of history repeating itself more often when it leads to personal gain?
    - discombobulate 9y ago
      I think it's possible that if crypto currency became 'too' prevalent the 'war' on drugs would end & police resources rerouted to proper crimes (my bias after a little reading on the subject).
- Fifer82 9y ago
  I did the same thing on first read. Why did that happen?
  - deleted 9y ago
    [deleted]
zitterbewegung 9y ago
I remember attending a meeting of Hedge fund people and they had a concept called liquid alternatives. Looks like this fund is positioning itself as a liquid alternative.
ritarong 9y ago
It feels almost like a Robin Hood situation. Where the big players get in late and take the other side of the orders of the early adopters. Essentially transferring their millions to the early adopters.

143 points by panarky 9y ago

The Harvard endowment has suffered from poor management recently so not sure if the headline is intended to make sure people think this is a good or bad idea

audiometry 9y ago
Yeah, this is interesting. They mentioned some turnover at the fund, and this guy in particular only lasted for a couple years at Harvard. I recall a few years ago how people talked about Harvard fund mgmt in reverent tones as if they somehow were simply smarter and better than everyone else. That caused some dissonance with me because a former boss's boss was someone who Harvard Endowment hired, and in my experience he was definitely not smarter and better trader than everyone else. So I guess over time they find it as difficult to make returns as the rest of us do.

adamnemecek 9y ago

> The fund, which is registered in the Cayman Islands Probably because of the beaches, pina coladas and what not, riteguise?

fnord123 9y ago
Probably because of the favourable taxation jurisdiction. Capital is very mobile and not there's usually not a strong reason to keep it in high tax jurisdictions if it's possible to move it out. Of course, it should have been taxed when it was earned by investors. And it will be taxed again when investors receive and domesticate any dividends. That part is the dodgy tax dodging issue. Not the issue of where the fund is based.
- overcast 9y ago
  You don't say?!
- adamnemecek 9y ago
  I'm well aware of Cayman Islands taxes. > Capital is very mobile and not there's usually not a strong reason to keep it in high tax jurisdictions if it's possible to move it out. They are exploiting a loop hole.
  - sabalaba 9y ago
    From the perspective of taxpayers, having nations compete for the lowest taxes and most friendly regulatory environment is beneficial. If there were a global territorial monopoly on the production of security and rule of law, you would likely find yourself with a lower quality of life.
    - adamnemecek 9y ago
      The problem is that I (and possibly you idk) can't decide to start paying taxes in Cayman islands while still residing in the US. Why should a hedge fund be allowed to do that? Why should a hedge fund that takes advantage of the US social structure (funded by taxes) be allowed to not pay taxes in the US?
      - hendzen 9y ago
        The employees of the fund, who reside in the US presumably, will be taxed on the income they earn from the fund. Why should they be taxed twice? Google & Apple, etc play the same jurisdictional tricks, as do pretty much all multinational firms.
        adamnemecek 9y ago
        > The employees of the fund, who reside in the US presumably, will be taxed on the income they earn from the fund. Why should they be taxed twice? Why should it be the employees getting taxed and not the corporation? I might get taxed more than twice. Federal income tax, state income tax, sales tax, capital income tax, why should a corporation get a pass? I also don't think that it's getting taxed twice as they are different taxes. > Google & Apple, etc play the same jurisdictional tricks, as do pretty much all multinational firms. Why are you assuming that I condone that?
whatok 9y ago
Or maybe because some non-taxable US-based investors only invest in offshore vehicles.
SkyMarshal 9y ago
It's also offshore b/c non-US ICO's don't want exposure to "SEC risk" due to taking money from US investors. The fund will lose potential deal flow if it's US-based. This is a concern in the industry right now.
- branchless 9y ago
  It's not in the USA because of that. But it's in the UK because they don't prosecute any financial crimes.
- aphextron 9y ago
  >It's also offshore b/c non-US ICO's don't want exposure to "SEC risk" Can't be dealing with all those pesky "laws"!
  - mhluongo 9y ago
    The rest of the world has laws too. International banks and other players in finance also struggle with the regulatory burden that comes with accepting US customers.
TimPC 9y ago
If people want to start this fund in the US, I think the bigger question is it's not completely clear what the taxes are and how they work for cryptocurrencies, etc. In this case while Cayman tax rates are highly favorable, it's not clear how much of a factor that is, and how much of a factor just not knowing which instruments count as which type of investment and what the taxes actually are is. If you pay out to your clients then find out one investment was misclassified because of later regulatory clarification then you can easily end up having failed to withhold millions of dollars with severe legal consequences. Very few of the people moving money to the Cayman pay $0 in taxes because returning the money to the US is subject to tax events and it takes very complicated legal structures like those in Ireland or Netherlands to get money in the Cayman to not be double taxed since the US and Cayman don't actually have a tax treaty.
- delazeur 9y ago
  This is also why U.S. companies like to incorporate in Delaware – it's not that the laws and regulations are favorable, it's that the laws and regulations are well known and predictable.
Clubber 9y ago
Hey, if this catches on, it could be the next great economic collapse!
lordnacho 9y ago
Hedge fund guy here. Every hedge fund is registered in some obscure offshore location. Don't confuse that with where it's managed from. The reason is tax related. The investors don't want a tax bill dependent on some complicated local regime, and you want investors from different countries. That doesn't mean there's never any tax paid, it the company that "advises" or manages the fund will still be based in a well known financial centre like NYC or London, and will pay all the same corporate and employment related taxes that any other firm pays. The 2/20 fee goes to this management firm. And when the investors bring their money back into their jurisdiction, they pay according to whatever the capital gains regime that's relevant.
- TrickyRick 9y ago
  I think that's exactly what the joke was about...
  - lordnacho 9y ago
    He heavily implied there was some sort of illegitimate reason behind it. There isn't.
    - irishasaurus 9y ago
      I would argue avoiding taxes from the country where the fund is managed is a bit illegitimate.
      - lordnacho 9y ago
        That's what I just explained doesn't happen.
        irishasaurus 9y ago
        So the fund is managed in the Caymen Islands?

discombobulate 9y ago

Digital currencies like M-Pesa & Paypal?... Oh, no he seems to be buying crypto assets; which have value because they're decentralised. Silly me. I was confused by the author being confused. Edit: if you're downvoting me for this comment then you don't know what you're talking about. Happy to debate! Edit2: seriously, there's a distinction to be made. One is a censorship resist asset (which is why the trade-off of greater resources is made) & the other isn't. Edit3: explain to me why that isn't true & I'll change my position!

dpflan 9y ago
Seems like a good opportunity to explain why "that is true". I'm curious what you're thinking.
- discombobulate 9y ago
  Each asset can be looked at in terms of use cases. Bitcoin is the first crypto asset. The currency use case. Etherium is a generalised platform -- computing. Others have been created or are in the works. For any given use case I believe the solution could be done more efficiently with traditional tech. What traditional tech doesn't do is provide resistance to censorship. Governments can take them down. Currencies, social networks, whatever. The raison d'être of crypto is to provide this resilience. That's what the extra resources go to. Crypto is valuable because it's a more resilience-whatever. E.g., Bitcoin is a more resilient money (Monero is better b/c it's private). Assets which can be taken have less value. Platforms which require permission have less innovation. That's the quick answer.
gedrap 9y ago
> if you're downvoting me for this comment then you don't know what you're talking about. Happy to debate! Well, it's just that it's fairly obvious what is meant by the headline given the events of the past couple of years and your comment doesn't add anything.
- discombobulate 9y ago
  The words are wrong. The definitions are incorrect. If you don't know the difference then it does add something. That's called ignorance on your part. I've explained the difference. Edit: & it makes a difference b/c one implies government control & the other control by the individual. Individual freedom. Privacy. Saftey from persecution. Allowing freedom of speech -- without the risk of being defunded by the government. Edit2: Thank you for your comment.

singhrac 9y ago

I would call "former Harvard money manager" an anti-pedigree given its gross incompetence this past year.

discombobulate 9y ago

Ari Paul[0] helped run a 75B fund. This isn't particularly new. The clumpy writer should probably sit down & figure out what's going on before shouting from the rooftop. [0] https://twitter.com/aridavidpaul?lang=en https://twitter.com/aridavidpaul?lang=en Edit: Here are 15 more hedge funds for the klutz. Please old media: keep up! Would quite like NEWs. https://www.forbes.com/sites/laurashin/2017/07/12/crypto-boom-15-new-hedge-funds-want-in-on-84000-returns/amp/ https://www.forbes.com/sites/laurashin/2017/07/12/crypto-boo... Edit2: dpflan, I think I'm being throttled b/c of my VPN. Here's how I see it; Personally, I think bitcoins will still increase, but the bet is more symmetrical. There are other crypto assets which are asymmetrical bets (lose 1x, gain 100x). I focus on the latter.

dpflan 9y ago
This is a gem: https://twitter.com/GlobeSvcs/status/897666132705988609 https://twitter.com/GlobeSvcs/status/897666132705988609 What do others think about Bitcoin's value changes and BTC as an investment? (Or the missed opportunity of investing in fidget spinners :)!)
- Rmilb 9y ago
  The value proposition has always been that if it can succeed success being defined as being one of the major crypto currencies to see adoption, then just taking 1% of the global gold market, black market transactions, and remittances; its worth around 5k-ish already. I would consider it a gamble and not an investment. Some call it a new asset class that isn't correlated to other assets, which is valued by portfolio managers. Its high risk high reward, if you understand why it has value and want exposure to the risk, put in enough that you are fine losing. This is still a grand social experiment and still could plummet in price at ANY time.The government regulatory clarification we have seen over the past few years has lessened the risk of a government crackdown at least. This is not financial advice.
ribosometronome 9y ago
>There are other crypto assets which are asymmetrical bets (lose 1x, gain 100x) Such as? Eth isn't going to increase 100x in any meaningful amount of time at it's current price.

sremani 9y ago

A quick search on interwebs yielded this advice, >>If you will invest in a hedge fund, or require maximum transparency and regulatory agencies, I usually recommend Cayman Islands or Luxembourg.<< edit: the point of the post, is more or less answer to my own question. Why cayman instead of Panama or some other place. May be I am not clear about it in the post.

Havoc 9y ago
For those not familiar with offshore lingo, transparency here means the legal structure is essentially "look-through" almost as if you owned the underlying investments. It's not transparency as in freedom of info.

xefer 9y ago

Why would Harvard let these people go only to turn around and pay them fees to invest their money as a separate entity?

mysterydip 9y ago

I misread the title as "is laundering a digital-currency hedge fund." While a funny mental slip, on second thought it might not end up far from the truth given some of the coin news the past few months.

discombobulate 9y ago
Funny how biases play on our interpretation of the world.
- ben_jones 9y ago
  Biases or the likelihood of history repeating itself more often when it leads to personal gain?
  - discombobulate 9y ago
    I think it's possible that if crypto currency became 'too' prevalent the 'war' on drugs would end & police resources rerouted to proper crimes (my bias after a little reading on the subject).
Fifer82 9y ago
I did the same thing on first read. Why did that happen?
- deleted 9y ago
  [deleted]

zitterbewegung 9y ago

I remember attending a meeting of Hedge fund people and they had a concept called liquid alternatives. Looks like this fund is positioning itself as a liquid alternative.

ritarong 9y ago

It feels almost like a Robin Hood situation. Where the big players get in late and take the other side of the orders of the early adopters. Essentially transferring their millions to the early adopters.