London-based Prime Factor Capital Ltd. has just become the first cryptocurrency hedge fund to gain approval by UK regulators.
According to a report published by Bloomberg, Prime Factor Capital has received approval from the Financial Conduct Authority (FCA) to manage alternative investment funds which will focus on cryptoassets.
The hedge fund was originally established by former employees of BlackRock Inc. and RWE AG, bringing a substantial amount of experience to the table for the relatively new management group.
London's Prime Factor Capital becomes the first investment firm focused on cryptocurrencies to win the stamp of approval from U.K. regulators https://t.co/oAyWXrK6j1— Bloomberg Crypto (@crypto) July 2, 2019
On July 1, the fund issued a statement informing clients it will be regulated as any other alternative investment hedge fund under European Union rules. According to the release, Prime Factor Capital is now able to manage more than $100 million euros in assets and can broaden their offering to institutional investors.
Regulators have been slow to grant approval to cryptocurrency-related funds. While cryptoassets command a market capitalization of more than $300 billion, they have also exhibited massive volatility relative to traditional markets. Crypto and the exchanges that fuel the industry have thus far managed to operate in unregulated waters, which has led to the abundance of hacks and other shady dealings.
However, Prime Factor’s chief operating officer (CEO) and former BlackRock investor Adam Grimsley believes the FCA is being proactive in its decision. As cryptoassets gain popularity with retail and institutional investors, the need for some form of market oversight has increased.
Grimsley told Bloomberg,
“Most vehicles for investing in cryptocurrencies are outside the scope of regulators and that’s a big problem in a market that has such a bad reputation,”
As the first cryptocurrency hedge fund to gain approval by the UK’s regulatory watchdog, Prime Factor is now beholden to a set of requirements to remain in compliance. The management group will have to appoint an independent depository for oversight, cash flow reconciliation and safekeeping of assets.
In return, Grimsley says clients receive “assurance” on the fund’s returns and that the value of assets under management is consistent with what is being reported.
Prime Factor 10 hedge fund performance | Source: Prime Factor Capital
According to the market performance indicator on their website, the Prime Factor 10 fund has generated a 147 percent Year-To-Date (YTD) return, closely tracking the rise of bitcoin.