Fund that returned 4,144% shares 3 requirements for investment

• Brandon Yarckin says Universa has discussed using crypto in their strategy.
• However, the options trading market is not mature enough in the digital sector.
• Crypto will make it to their radar when it is a core part of how people make investment decisions.

This year’s hedge fund-focused SALT conference in New York City had a heavy crypto presence, with about a third of the panels focused on digital assets, according to Skybridge Capital’s Anthony Scaramucci.

But the crypto-heavy conference meant one hedge fund was absent. Universa Investments, a black swan fund that specializes in buying protection against major market crashes, jumped ship this year.

Brandon Yarckin, CEO of the firm, told Insider that if they had a stronger thesis or opinion about digital assets, they would have been there.

Although crypto is not part of their current strategy, he noted that there have certainly been conversations about it at his firm and that Universa will consider it in the future.

“Crypto is a buzzword, but it’s more like software or an application at the end of the day,” Yarckin said.

Society will continue to use the technologies that are developed over the next few years, and Universa is no exception, he added. However, derivatives, especially options, are not mature enough in crypto markets to enable the firm to transfer its strategies to this area yet.

Crypto will make it onto the firm’s radar when it’s a core part of how people make investment decisions, he said. There are three key attributes that need to mature, including the ability for these assets to create wealth over time; the market is evolving to demonstrate the same characteristics as traditional market cycles such as stock market crashes, which Yarckin noted he has already witnessed; and finally and most importantly, a monetized derivatives market, which it is beginning to develop, he added.

Universa has been vocal against strategies that use the diversified 60/40 portfolio mix of stocks and bonds. They argue that the approach often costs investors more wealth in the long run.

The Miami-based hedge fund, which has $15.5 billion in assets under management, has made headlines in the past after its flagship Black Swan Protection Protocol fund reportedly returned 4,144% amid the 2020 stock market crash.

When the fund is not navigating extreme conditions, its “decade-plus lifetime and audited average return on capital exceeds 100%,” according to the book “Safe Haven: Investing for Financial Storms,” ​​which was written by Mark Spitznagel, Universa’s chief investment officer.

“Our institutional clients use us to do that [hedge] in a more cost-effective way, meaning we’re doing it in a way that’s better than what they’re doing, that allows them to increase returns, reduce risk,” Yarckin said.

Right now, if an investor asked Universa to help them hedge their exposure to crypto, they would have to turn them down, he said.

Many crypto investors may perceive these digital assets, bitcoin specifically, as a hedge against currency devaluation. Still, their recent price drop means the thesis is disconnected from practice, he said.

Someone holding crypto for that purpose would not usually look to hedge their crypto position with Universa. Since the firm already acts as a hedge, it usually wouldn’t make sense to add an additional hedge on top of that, he added. It’s like adding a layer of insurance to your existing policy. Universa helps clients reduce risk with the goal of helping them increase compounded returns over time.

In addition, the market for crypto options is not large enough to accommodate meaningful hedging at this time for people using crypto as a long-term investment vehicle. But Yarckin noted that market liquidity could change in the future.

As for investors treating crypto as a technology stock, as long as they understand the purpose and use of each project, it makes sense. You need to have a clear thesis for why you choose crypto assets over a technology stock, such as Microsoft, he said.

The problem is that some investors may fall into the sector because of hype or FOMO, and that’s where the mistake is made, he added.