This description has been mainly prepared for investors but it can also be useful for funds that intend to undergo our due diligence process. The fund selection and analysis process is based on our team 25 years’ experience and is based on numerous factors, which we will summarize below.
Our process’ main characteristic is a fundamental approach. It based on a top-down methodology and incorporates a mix of qualitative and quantitative analysis criteria.
We consistently monitor a pool of +1,000 funds, encompassing nearly the entire Digital Assets fund industry—a notably smaller sector when compared to the traditional industry. The initial step of the investment process is primarily quantitative and focuses on macro strategy, including liquidity matching with our fund. There is a tight funnel in this initial fund selection, reducing the potential candidates to roughly 300. We do not disclose specific details here but provide a much higher level information during one-on-one meetings to offer a clear view of the process.
This first funnel is primarily quantitative, relying on objective criteria that have been defined and are not open to interpretation. While the process undergoes periodic adaptations and reviews, its fundamentals remain stable.
The second step focuses on compliance and risk management. We have established a foundational layer with quantitative limits, making it challenging to alter the outcome based on the initial selection process. All competitors must meet specific compliance and structural standards to progress to the next stage. At this point, approximately 100 funds meet our criteria, forming a shortlist within the Digital Assets hedge fund industry.
Introduction to the Due Diligence Card
In response to the need for more in-depth research and due diligence, we have developed what we call a "Due Diligence Card." This tool serves as a lens through which we evaluate funds, providing scoring outputs that prioritize Due Diligence and Compliance, followed by performance, people, philosophy, and process aspects. While it functions as a due diligence questionnaire, it is customized to our requirements, offering a comprehensive overview of each shortlisted fund's information, collected at the end of our processes.
Due Diligence Card process:
The first step involves populating the Due Diligence Card with information that can be acquired online, through our research, or from marketing materials.
Next, we initiate contact with the candidates, comprising around 50 to 60 managers. We share Due Diligence Cards with the candidates, requiring them to provide all necessary information.
This brings us to the final stage of our selection and investment process.
With the information gathered through the Due Diligence Card, we can conduct our analysis and selection. While we cannot provide specific details, the range of analysis is extensive. For example, we have identified historical critical periods in terms of performance and we take a focused look at those periods, to evaluate over and under performance. We do not merely evaluate whether it was positive or negative during those periods but also whether it aligns with the fund's strategy and objective.
Scores are assigned to managers on the Due Diligence Card, creating a heatmap for each manager, covering various macro fields for evaluation this result in an overall score of the manager.
Attention to People:
We place significant emphasis on owners, executives, and management since we believe that people drive companies. Consequently, we dedicate substantial effort to researching and assessing the backgrounds of individuals, as this is a key factor in our evaluation.
Due to the global nature of our fund, it is not feasible to meet all sub-fund executives in person during the initial stages. However, we utilize technology to conduct video meetings and gather an extensive amount of information, as indicated above. We typically conduct one-to-one meetings with shortlisted candidates, starting with executives and subsequently engaging with fund managers and others. In-person meetings also take place over time.
The final selection is based on two defined areas—strategic and tactical. In simpler terms, this refers to core portfolio construction and timing opportunistic decisions:
- Strategic portfolio construction aims to select players with an institutional profile, covering various macro technology sectors comprehensively. This involves strategies that differ from one another with low rotation and a long-term commitment to the managers (though it's essential to note that nothing lasts forever unless expectations are met).
- Tactical or market timing involves constructing a portfolio with a shorter-term perspective. It includes managers with new sector strategies, defensive strategies, or strategies that have performed well in market conditions similar to those we believe are coming in.
- A portion of the portfolio is directly managed, typically comprising between 20-30% of the total portfolio.
Our market research is conducted biannually, involving updates to the Due Diligence Cards for selected managers and the potential inclusion of new managers. The shortlisted candidates are continuously monitored, with periodic calls and meetings on our agenda.
We believe the immense effort invested in our Fund provides substantial value in terms of the depth and detail of our knowledge of underlying managers. We are committed to delivering this value to our investors and view it as a clear enhancement to their portfolios.
Note from the CEO:
“Thank you for taking the time to read about our investment process. We take pride in the results we have achieved. In one-to-one meetings, we can delve even deeper into the details. We hope that the information above helps you consider the Millennials Multistrategy Fund as a promising option for your investment profile and portfolios”