Former hedge fund and commodities team builds new crypto index platform
From the Swiss hedge fund and commodities firm, Diapason Commodities Management, comes Compass Financial Technologies, the index provider which already provides crypto index solutions on USD5 billion of crypto assets.
Guillaume Le Fur (pictured), founding partner of Compass, explains that 20 years ago he started on indices based on commodities, most notably with the Investment Biker, Jim Rogers. In 2017, Diapason let its index team go, and Compass was established. Now, Compass provides its indices on commodities, real estate and digital assets. The latter index calculates the price of a square meter of Paris, and has a futures contract listed against it.
“We found that digital assets were interesting to us and started working with Coinshares two years ago on their CoinShares Gold and Cryptoassets Index (CGCI) and on their XPT Provider products,” Le Fur says.
“Now we have the objective to provide other solutions to investors on digital assets. There are a lot of ETPs on cryptos now and they are all very similar Delta one products, very basic, but this is natural as investors in this new asset class need education and to understand the asset class.”
Le Fur draws a parallel with commodities 20 years ago. “Now I am convinced that investors are looking for more sophisticated solutions, and also need to manage volatility which is a big concern for investors in the digital asset market.”
Le Fur believes that the volatility in digital assets is too high for some institutional investors. “We offer volatility target indices that are popular on the ‘traditional’ asset classes, but don’t yet exist on digital assets,” he says. “We want to bridge a gap between the digital asset industry and the traditional world.”
Their first iteration is an index platform of EU Benchmark Regulation (BMR) compliant benchmarks that offer new tools to invest in the crypto market. In addition to crypto reference indices that can be used as BMR-compliant benchmarks for ETPs or others investment products, the platform also offers volatility target indices, designed to offer exposure to the highly volatile crypto market while controlling the volatility and mitigating the drawdown.
The firm has created a set of 18 volatility target indices for 18 different digital assets, with a target volatility of 20 per cent, which can be adjusted. “As any volatility target index, the objective is not to outperform the underlying but to be exposed to the digital asset with a dynamic control of your risk,” Le Fur says.
Compass has turned to its network of institutional investors with these products. “We are in discussion with different players and the potential client list is quite huge,” he says. “It could be a crypto exchange, or an existing digital asset manager but there are also some traditional asset managers who find it makes sense now we can control the volatility.”
The firm is also looking at basket and multi-asset indices, that include gold or other precious metals with digital assets, or equities plus digital assets.
The firm is unlikely to launch its own ETPs, preferring to work on the research and design of indices.
Le Fur dismisses the theory that cryptocurrencies are a bubble. “Digital assets are like commodities,” he says. “You cannot print gold, copper, bitcoin or Ethereum,” he says. “The market capitalisation is limited so it might be a good inflation hedge.”
The firm has also established dedicated index steering committees with experts from the crypto industry including Professor William Knottenbelt, director of the Imperial College Centre for Cryptocurrency Research and Engineering and from the ‘traditional’ index engineering industry with Laurence Black, founder of the Index Standard and index advisor to the Nobel Prize winner Robert Shiller.