SkyBridge Capital Hedge Fund Limits Client Exits Amid Crypto Surge
Anthony Scaramucci, the founder of SkyBridge Capital, has implemented measures to limit client exits from the firm’s crypto-focused hedge fund. This comes despite significant gains in cryptocurrency, which have led to impressive returns for the fund. Investors holding around 70% of the fund’s shares sought to redeem their investments during the most recent redemption period, which concluded in March. However, the fund only managed to buy back approximately 7% of those shares.
Scaramucci, 60, has chosen not to comment on the situation directly. However, he has previously stated that the fund’s structure allows him to limit redemptions, ensuring operations remain within the bounds of the prospectus. This approach was first adopted two years ago during the “crypto winter,” a period marked by substantial losses for the SkyBridge Capital hedge fund and increased investor withdrawals.
Crypto Rebound and Fund Performance
The cryptocurrency market has seen a remarkable rebound since then. Bitcoin, for example, surged by roughly 150% over the 12 months ending March 31, while the SkyBridge Capital hedge fund experienced a gain of 46.4%. Despite these strong returns, many investors are pressing Scaramucci to release their funds. Notably, Morgan Stanley’s (NYSE:MS) private wealth clients, who represent about 70% of the hedge fund’s $1.6 billion in assets, have been attempting to exit for over a year.
A spokesperson for Morgan Stanley declined to comment on the situation, reflecting the sensitive nature of these client movements.
The Practice of Gating Investors
Hedge funds typically resort to gating — restricting withdrawals — when they hold illiquid investments that might disadvantage remaining investors if sold hastily. Sometimes, gating is employed to retain capital during periods of poor performance. Brett Messing, SkyBridge’s Co-Chief Investment Officer, previously used this tactic at his former fund, GPS Partners, which gated investors after a significant loss in January 2008. Less than 20% of clients requested withdrawals at that time.
At SkyBridge Capital, despite recent strong performance, the fund’s historical losses have left a lasting impact. The first quarter of 2024 saw a 26% increase, yet the annualized returns over the past five years were less than 1%. As of the end of 2023, SkyBridge managed around $2 billion, a sharp decline from its peak of $9 billion in 2015.
Anthony Scaramucci’s Notable History
Scaramucci is perhaps best known for his brief stint as the White House Communications Director under President Donald Trump in July 2017, a role he held for just 11 days before being dismissed following a controversial interview. In addition to his political endeavors, Scaramucci is recognized for founding the SkyBridge Alternatives hedge fund conference, known as SALT, which has become a prominent industry event.
Originally, SkyBridge Capital gained recognition for its investments in other hedge fund managers, including notable figures like Steve Cohen, Dan Loeb, and Izzy Englander. However, in 2020, the firm shifted its focus towards cryptocurrencies. By the end of the first quarter of 2024, the fund’s portfolio comprised 57% in cryptocurrencies and digital assets, 21% in multistrategy funds, 7% in equity funds, and 15% in structured credit funds.
Conclusion
SkyBridge Capital’s decision to limit client exits, despite the impressive performance of its crypto-focused hedge fund, underscores the complexities of managing investor relations in volatile markets. As cryptocurrencies continue to gain traction, how SkyBridge and other hedge funds navigate these challenges will be closely watched by industry observers and investors alike.
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