Interview: Benedict Ho of MaiCapital – a hedgie navigating the crypto world

Benedict Ho, Co-Founder and Managing Partner of MaiCapital, a blockchain and cryptocurrency-focused hedge fund firm in Hong Kong that Benedict set up with Michael Wong, talks to HFC’s Stefan Nilsson about navigating the ever-changing environment that crypto investors operate in.

MaiCapital Limited is a multi-strategy hedge fund management firm specialised in blockchain and cryptocurrency investments and deploying quantitative trading and arbitrage strategies. Benedict Ho has 17 years of experience in overseeing investment and business operations in institutional asset management companies. He oversaw Fubon Bank’s pension fund and its fund business before co-founding MaiCapital. Prior to Fubon, he was in charge of the trading desk at a multi-billion hedge fund. Ben holds a Master’s degree in Management Science and Engineering from Stanford University and a Bachelor’s degree in Computer Engineering from the University of Washington.

Tell us the story behind you launching MaiCapital in 2018.

MaiCapital was co-founded by Michael and me. We met back when we were students at Stanford and after we graduated in 2002, we pursued different career paths – Michael went into the tech world working on developing Wi-Fi and 4G/5G technologies while I went into the finance world, running trading desks at MCP and later Fubon Bank’s provident fund. However, as we had been heavily influenced by the entrepreneurial spirit in Silicon Valley, we had always been on the lookout for opportunities to start our own business, looking for opportunities that can utilise our combined expertise across finance and tech. Finally, the blockchain revolution arrived and an opportunity presented itself. During the remarkable growth year for the blockchain and crypto industry in 2017, we saw a plethora of investment funds appearing in the market, being offered to investors as if they were all proper investment products. But, in fact, many of them were just prop shops run by a few programmers who have no clue about managing other people’s money nor protecting investors’ interests and managing risks. This presented a perfect start-up opportunity for us – an opportunity that can tap into the immense potential blockchain brings to the hedge fund industry, while at the same time one that requires relevant industry veterans with deep experience across asset management and technology to execute towards. So, in early 2018, we decided to start MaiCapital – to build a truly institutionalised asset management business for the blockchain and crypto industry. Having spent more than 15 years each in our respective industries, both Michael and I understood that that for us to build a sustainable and scalable business, especially one that is in the business of managing other people’s money, we must have a legitimate, proper and institutionalised setup starting from day one. Thus, upon starting MaiCapital, we filed an application to Hong Kong SFC to be Hong Kong’s first licensed hedge fund manager to manage a thematic blockchain fund. And the rest is history.

What can you tell us about MaiCapital’s impressive team?

Our management team comes from a diverse background with different skill sets. I am from a buy-side trading background. Before I co-founded MaiCapital I was in charge of the investment company of Fubon Bank in Hong Kong where I managed the pension fund for their employees. Before Fubon I worked at MCP Asset Management for nine years. I oversaw the trading desk at MCP. They are one of the biggest hedge funds in Asia with US$6bn in AUM with clients from sovereign wealth funds and major banks. Our co-founder Michael is my Stanford schoolmate. He has a strong technical background. He started investing in digital assets and crypto companies in 2015. Marco is an ex-Goldman Sachs director where he oversaw the e-FX business. At MaiCapital I am the portfolio manager while Marco and Mike overlook sales and business development.

What sets MaiCapital’s strategies apart from other crypto hedge funds and blockchain funds?

MaiCapital is one of the first SFC regulated hedge fund managers focusing on blockchain technology and virtual assets-related investments. The target clients are family offices, financial institutions and high net worth individuals. MaiCapital’s flagship product, the Blockchain Opportunity Fund, provides investors with a single stop solution to gain exposure to the biggest and most promising virtual assets, eliminating the trouble of maintaining multiple private keys, wallets, exchange accounts and complex tax filings. The Blockchain Opportunity Fund is an actively managed absolute return fund. The fund will do both long short. The fund aims to generate attractive returns for our investors with reduced volatility and minimised drawdowns. The fund is multi-strategy with a mix of cross-exchange crypto pair arbitrage, quantitative trading and systematic trading by our proprietary technical model. MaiCapital proprietary trading analyses a lot of market and on-chain data. We will quantify factors such as momentum, activity, media sentiment and go long the ones with the best potential return by its metrics. Our team works with large data sets to generate trading signals and building trading models. Volatility is a major deterrent to institutional investors investing in this market. I think that in 2018 you saw a failed case for the crypto hedge fund industry. The average cryptocurrency hedge fund was down over 71%, based on Eurekahedge data, as most of them were just buy-and-hold or long-only strategies. When you mention the word hedge fund, investors are really expecting you will be able to generate profit in both bull and bear markets, that is why they pay you 2 and 20. Most of the funds in the cryptocurrency space are long-only. Our risk management system differentiates our product from other blockchain funds which are mostly long-only with a buy-and-hold approach. When the market crashed on Covid-19 in March with bitcoin plummeting over 50% intraday, our fund did not suffer from any drawdown that day thanks to our hedging strategy. There were a few hedge funds that blew up and shut down during that time.

How do you deal with the ever-changing crypto world where you have to deal with not only asset volatility but also evolving regulations and changing taxation?

By literally working 24/7. But kidding aside, it is indeed quite a challenge to keep up with the ever-changing environment that we operate in. We recognised early in the game that we must have a highly capable, cross-functional team, with expertise spanning across finance, compliance, investment and technology, that can comprehensively monitor all the changes relevant to our business and also come up with innovative ways to address new operational challenges that come along with the changes. We are very grateful to have formed such a team at MaiCapital and we aim to continue to stay nimble so we can adapt quickly as the industry continues to evolve.

How do you as a trader deal with keeping assets safely in custody while at the same time being able to trade in a timely and efficient manner?

It is always a debate about convenience versus security. We do not want our assets connected to the internet but we will need to have access to the assets periodically so we can trade them. The turnaround time from custodian is usually one day and one day is a long time for the crypto market. The price can move 20%-30% in a day for cryptocurrency. Depending on market conditions we will decide the allocation between off-line custodian or on-line cryptocurrency exchange. We have a limit on our exposure to any individual crypto exchange to limit our risk to each counterparty. I think this issue will be solved eventually when bigger players enter the space to provide prime brokerage solutions for cryptocurrency.

What type of investors are you seeing allocating to your funds?

We have high net-worth individuals and family offices allocating to our funds in the past 22 months. Four of those high net-worth individuals are also listed-company owners. Recently, we are now seeing more funds of funds and external asset managers inquiring about our fund products after bitcoin surpassed US$30k. We are expecting larger financial institutions start looking at this asset class soon.

What about your service providers – are they now able to provide an institutional-grade service to an emerging asset class such as cryptocurrencies?

The number of crypto-friendly service providers has increased compared to when we launched our first fund 22 months ago including fund administrator, custodian, crypto-friendly fiat bank, licensed counterparties. However, we have yet not seen a traditional prime broker that services cryptocurrencies as an asset class.

Your business is based in Hong Kong. Your strategy is a global strategy and could be managed from anywhere. Why did you decide to base the business in Hong Kong?

We based our firm in Hong Kong because it is one of the leading global financial centres. The SFC has established itself as a world-class market regulator recognised by its peers and market participants. According to HKEX on 31 December 2020, market capitalisation reached a record high of $47.5 trillion. We are well-positioned here in Hong Kong to capture a part of the capital as interest in crypto assets increase. China is also an untapped market for regulated virtual asset funds. We believe that via the Hong Kong-recognised regulatory framework of crypto assets, we can attract Asian investors, including Chinese ones, to invest in this new asset class.