Singapore-based Stack Funds is in talks with institutions about providing access to a bitcoin index fund that fits their existing rules and infrastructure.
Stack Funds launched the index fund in February using the license of its partner, Swiss-Asia Financial Services. Swiss-Asia has a Singaporean Capital Markets Services license, and offers its back and middle office to third-party fund managers and helps them access wholesale clients.
Matthew Dibb, Stack Funds’s co-founder and COO, says the firm initially looked at novel, blockchain-based infrastructure to distribute the Swiss-Asia fund. One of the promises of digital finance is to create a more efficient set of processes that cuts out intermediaries.
Stack Funds rejected this approach, however, realizing it would be too much of a hurdle for family offices and other potential institutional investors.
Investors and distributors like private banks do not have the systems in place to account for cryptocurrency, from accounting to position monitoring, and such holdings could also face hurdles meeting mandate requirements. And that’s before any compliance issues.
“The due diligence questions are huge,” Dibb said. “We wanted to create access that looks and feels traditional and meets compliance requirements.”
Index fund
In February Swiss-Asia launched an open-ended index fund with daily liquidity. It is 100% exposed to bitcoin, but puts it in a traditional equity fund format – such as cutting a daily net asset value – thus saving investors the need to somehow wrap their infrastructure around crypto.
“We want to become the Vanguard of the crypto world,” Dibb said.
The fund is domiciled in Cayman Islands, because Singapore does not have regulation around pure crypto products. Stack creates the access products and the tech platform to onboard investors.
The due diligence questions are huge
Matthew Dibb, Stack
Other players supporting the product include Cumberland for OTC trading, Bitgo, Coinbase and Sygnum Digital Bank for custody, and Lloyds of London for insurance. The fund also has independent auditors and administrators.
The fund charges an annual 2.25% management fee, with no performance fee (it’s an index product).
So far Swiss Asia’s index fund has raised about $70 million in assets, and Stack Funds is now in discussions with boutique private banks and family offices, as well as directly with wealthy individuals, about how to create structured products that would give them access to the fund in a format that fits their existing setup.
Institutional focus
Although there are already similar outfits in the U.S., such as the $2 billion Grayscale Investment Trust, there is currently only one other bitcoin investment fund from Asia: Arrano Capital’s tracker fund, which is licensed by Hong Kong’s Securities Futures Commission to market to local accredited investors.
Swiss-Asia operates a CMS license but its bitcoin index fund is not licensed.
In the U.S., Grayscale’s trust is an exchange-listed product, but Dibb says the industry is unlikely to get exchange-traded funds that mimic index funds only in security form. Regulators are wary of what might happen should underlying coins experience a fork, creating new coins that investors didn’t ask for, including ones with features that could be illegal (such as privacy coins).
Therefore the main appetite for such listed products is retail and unregulated – which is not what the likes of Stack Funds and Arrano are trying to achieve. Whether institutions are ready to take big positions in bitcoin remains unknown, but these Asia-based firms are trying to make the experience as familiar as possible.
