On Monday, November 19, Anthony Pompliano, co-founder of Morgan Creek Digital, published a blog post warning that we might witness a wave of cryptocurrency hedge funds shutdowns at the end of 2018. He argues that numerous crypto-related businesses are in big trouble and that pretty soon they might close their doors as a result of this year's dramatic price collapse.
The current digital assets bear market has been taking a heavy toll on many crypto businesses, including hedge funds and ICOs, and poses further serious risks to them, according to Pompliano, a highly respected person in the crypto space. Ironically enough, a good many of crypto hedge funds might shut down at the end of 2018 not because they haven't made enough money but because they had made too much money earlier.
This is due to the so-called issue of high water mark (HWM), Pompliano explains further. Apart from regular small management fees charged for administering and trading investors' funds, fund managers also receive an incentive fee, which depends on their performance.
As a rule, it is calculated at the end of the year and amounts to about 20% of the profits generated by the fund. However, there is an HWM rule stipulating that managers only can receive their incentive fee if the...
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