Creating institutional-grade portfolio and risk management for digital assets

Apr 27, 2021

Are digital assets going mainstream? One thing is sure: they have been making staggering returns and are now attracting institutions. The value of bitcoin passed $1 trillion in February 2021, up from a market cap of $178 billion the previous year, while the overall value of digital assets topped $2 trillion for the first time at the beginning of April. Moreover, industry leaders such as Tesla, Fidelity and Goldman Sachs are helping to grow the marketplace.

Now that institutional investors are taking more interest, we need the right investment infrastructure to support continued growth. A key requirement is robust portfolio and risk management because digital assets are yet to mature and are exceptionally volatile.

Here are some of the main challenges facing crypto hedge funds, followed by solutions that can help them to seize the benefits of digital assets.

Key challenges for crypto portfolio and risk management

How to cope with volatility

Because digital assets are prone to huge price fluctuations, investors require strong portfolio and risk management solutions to ensure strategic focus and to stay in control. While volatility means opportunity for trading and arbitrage, it can also bring outsized risks.

The lack of institutional-grade solutions

The crypto marketplace is still immature and volume is overwhelmingly retail. Technology must catch up with what institutions are accustomed to in established asset classes such as equities. While well-developed order management and accounting systems have emerged in the crypto space, few institutional-grade portfolio and risk management systems are available.

Fast-moving markets require real-time solutions

Unlike trading equities, the cryptocurrency market is open 24/7. Although that means more opportunity to capitalize on intra-day swings, it underlines the need to control risk and keep track of portfolios in real time.

The weakness of spreadsheets

Spreadsheets are not fit for purpose as they require manual trade entry, are error prone and lack an audit trail. Although they have been a key business tool for decades, spreadsheets need to be replaced by automated solutions that are more reliable and manageable. If hedge funds are still using spreadsheets, it’s likely that they contain errors, and if a growing number of people are making updates and amendments, it can compound the problem.

Too many numbers, not enough visualization and insight

Raw numbers alone don’t give the full picture. Hedge funds need a comprehensive view and understanding of what’s happening in the portfolio, and that requires integrated portfolio visualization to help make sense of numbers.

Customized solutions are required in a rapidly evolving marketplace

Off-the-shelf, one-size-fits-all portfolio and risk management solutions often won't work for crypto investment firms. These solutions need to be customized to accommodate the rapid pace of change in digital asset markets.

How to collaborate on portfolios when working remotely

With the growth in remote working, it is a big advantage if technology can help teams work collaboratively on portfolios when team members are in different locations.

Solutions: How FundsTOTAL can help crypto hedge funds

FundsTOTAL has developed a Software-as-a-Service (SaaS) application suite that includes real-time trade capture, portfolio management, risk analysis, and performance attribution. The platform was originally created for traditional markets, spanning equities, options, futures, swaps and other derivatives, and is backed by more than 20 patents.

To support the emerging crypto marketplace, FundsTOTAL has created a dedicated product called FundsTOTAL Crypto.

The benefits of FundsTOTAL Crypto:

•  An institutional-grade solution for crypto. While tailored for crypto markets, FundsTOTAL Crypto also benefits from the company’s experience serving multi-billion-dollar funds in the traditional institutional space.
•  Consolidated views of fragmented markets. Clients gain a consolidated portfolio view of cryptocurrencies across numerous crypto exchanges, enabling traders and hedge funds to manage and analyze crypto portfolios, quantify risk, and measure performance.

•  A real-time solution across the board. FundsTOTAL Crypto was specifically designed to handle the real-time requirements of a volatile and rapidly moving marketplace. 

• Intuitive visualization across multiple dimensions. Clients can easily visualize and compare any portfolio attribute by dynamically creating interactive real-time charts that provide a better understanding of portfolio characteristics. 

• Quickly and easily customizable. With FundsTOTAL, clients benefit from technology that is designed from the ground-up for rapid customization – which is invaluable in the fast-moving and innovative world of crypto.

• Tailored solutions at a fraction of the cost. Custom software is prohibitively expensive, especially for small and medium-size funds. FundsTOTAL is a comprehensive, out-of-the-box platform that also offers customized solutions at a fraction of the cost (and time) it takes investment firms to build their own proprietary systems.

• Cost efficient and easy to manage. Because it’s a SaaS solution, there is no need to maintain a costly technology infrastructure. You pay only for what you use, there are no spreadsheets, and the platform scales to your needs and adapts to market developments.                        

• Built for collaboration. Because FundTOTAL’s applications are accessible and shareable at any time in any location, teams can collaborate effectively when working remotely.

Take the first step with FundsTOTAL

Although digital assets are increasingly attractive, crypto hedge funds must manage risks in a highly volatile marketplace and use real-time tools that are intuitive and rapidly customizable.

FundsTOTAL Crypto provides the control and oversight to meet the challenges of this marketplace and realise the benefits of digital assets. To find out how it can help your crypto hedge fund, request a demo today.   


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