SkyBridge Limits Exits Despite 46.4% Crypto Fund Gain

SkyBridge limits redemptions to 7% despite 150% Bitcoin surge and 46.4% fund gain.

By Alex P. Chase

7/11, 10:29 EDT
Bitcoin / U.S. dollar
Bitcoin / US Dollar
Morgan Stanley

Key Takeaway

  • SkyBridge Capital, led by Anthony Scaramucci, limited client exits despite a 46.4% gain in its crypto-focused hedge fund.
  • Investors owning 70% of the fund's shares sought redemptions; only 7% were bought back.
  • Morgan Stanley’s private wealth clients, holding 70% of the $1.6 billion fund, have been trying to exit for over a year.

SkyBridge Capital's Redemption Dilemma

SkyBridge Capital, led by Anthony Scaramucci, has effectively barred clients from exiting its crypto-focused hedge fund despite a significant rebound in returns. According to a regulatory filing, investors holding about 70% of the fund's shares requested redemptions during the latest period ending in March. However, the fund only bought back approximately 7% of those shares. Scaramucci, who has previously stated that the fund operates within the ambit of its prospectus, declined to comment on the current situation.

SkyBridge began limiting withdrawals two years ago during the crypto winter, a period marked by substantial losses and investor flight. Despite a 150% surge in Bitcoin over the 12 months ending March 31 and a 46.4% gain in the SkyBridge fund, many clients remain eager to withdraw their investments. Morgan Stanley's private wealth clients, who account for about 70% of the fund's $1.6 billion, have been trying to exit for over a year, according to sources familiar with the matter.

Gating Investors

The practice of gating, or curbing redemptions, is typically employed by hedge funds holding hard-to-sell investments to protect remaining investors. SkyBridge's Co-Chief Investment Officer Brett Messing has previously gated investors at his earlier fund, GPS Partners, after a 15% drop in January 2008, with fewer than a fifth of clients requesting withdrawals.

Despite recent strong performance, including a 26% jump in the first quarter, SkyBridge's gains have barely offset previous losses. Over the five years ending March 31, the fund posted annualized returns of less than 1%. The firm managed about $2 billion as of year-end, down from a peak of $9 billion in 2015. SkyBridge has pivoted to crypto investments since 2020, with 57% of its assets in cryptocurrency and digital assets, 21% in multistrategy funds, 7% in equity funds, and 15% in structured credit funds as of the first quarter.

Zodia Markets' Strategic Acquisition

Standard Chartered's crypto subsidiary, Zodia Markets Ltd., is in advanced talks to acquire Elwood Capital Management Ltd., a digital-asset business backed by billionaire hedge fund manager Alan Howard. The acquisition, expected to be completed this month, would provide Zodia Markets with licenses as a virtual asset service provider and investment business in Jersey, bolstering its focus on over-the-counter (OTC) settlement services.

Elwood Capital, part of Elwood Technologies, was established in 2018 and raised $70 million from investors including Goldman Sachs and Dawn Capital in 2022. The firm reported a loss of $16.9 million for the fiscal year ending March 2023. Zodia Markets, launched in 2021 as a joint venture between Standard Chartered's venture capital arm and Hong Kong's BC Technology Group, shuttered its crypto exchange platform earlier this year due to a lack of demand. The firm now focuses on high-speed, wholesale cross-border settlement services between fiat currencies and stablecoins, with daily OTC settlement volumes exceeding $50-$60 million.

Management Quotes

  • Anthony Scaramucci, Founder of SkyBridge Capital:

    "Operating inside the ambit of the prospectus."

  • Brett Messing, Co-Chief Investment Officer at SkyBridge:

    "Gated investors at his earlier fund, GPS Partners, after it dropped almost 15% in January 2008. Fewer than a fifth of its clients asked to pull their money."