During the market crash, a dividend of 70 million Hong Kong dollars was distributed, as Hong Kong's first compliant cryptocurrency hedge fund targets the wealthy

Author: Luo Fei, Tencent News "Qianwang"

The Hong Kong that had been bustling due to the cryptocurrency market for several months has finally quieted down. When Tencent News "Qianwang" met Ye Yizhou in late June at an office in the heart of Central Hong Kong, he expressed that he prefers the current state of Hong Kong, as the previous atmosphere felt unreal and chaotic to him.

Ye Yizhou has been involved in cryptocurrency trading for over six years and is the head of Frontier Youli Asset Management Limited. This fund is currently the only compliant cryptocurrency hedge fund in Hong Kong and has the best performance among those that have obtained virtual currency trading licenses in the region. Public information shows that there are now 11 funds that can invest in virtual currencies in Hong Kong.

According to Tencent News "Qianwang," Ye Yizhou's fund is the only one among these 11 that has outperformed the market. Public data indicates that Ye Yizhou's team ranked third in the net return rankings for cryptocurrency funds selected by Barclays in 2022, achieving a net return rate of 9.2%—while the industry generally faced nearly 50% losses.

At the end of 2022, the fund Ye Yizhou is part of distributed approximately 70 million Hong Kong dollars in dividends to its LPs (limited partners).

Ye Yizhou told Tencent News "Qianwang" that during the busiest week of the cryptocurrency market in Hong Kong in April this year, he hosted over 50 groups of people coming to Hong Kong "to seek opportunities in the cryptocurrency market." These individuals traveled from the United States, the United Kingdom, mainland China, as well as Singapore and Dubai, hoping that Hong Kong could serve as a haven for them as "digital nomads."

These individuals believe that 2022 was the most challenging year for the cryptocurrency market, and since Ye Yizhou and his team were able to make profits under Hong Kong's regulations, perhaps Hong Kong is worth a try. In 2022, the leading stablecoin Luna collapsed in May, and the top three exchange FTX collapsed in November, followed by a sharp decline in Bitcoin, which plummeted from nearly $40,000 in early May to $16,000.

However, Ye Yizhou believes that Hong Kong is not suitable for all cryptocurrency enthusiasts, nor is it suitable for some who want to transition from traditional finance to the cryptocurrency space; it is more suited for savvy traditional finance professionals.

Unlike most cryptocurrency traders who come from "grassroots" backgrounds, Ye Yizhou is a "regular army" trader who emerged from Wall Street. He graduated from Columbia Business School in the United States and joined a well-known hedge fund company on Wall Street, Fore Research & Management, where he worked for many years in convertible bond arbitrage trading.

In 2014, Ye Yizhou chose to return to Hong Kong and joined a local stock hedge fund company. During this time, due to personal interest, he began investing in Bitcoin early on. He told Tencent News "Qianwang" that at that time, there was no clear regulation on Bitcoin trading in the market, and he and his friends began engaging in large-scale Bitcoin secondary market trading in 2017. Subsequently, he left the institution to start his own business, establishing Youli Capital Limited in Hong Kong.

Ye Yizhou stated that the trading strategies for asset targets in traditional financial markets are mostly based on fundamentals, quantitative analysis, and event-driven approaches, which can be directly applied to cryptocurrency trading. Relatively speaking, trading in the cryptocurrency market is easier because most participants are "novices," lacking professional financial and trading skills. When experts from traditional finance enter the cryptocurrency space, they find themselves trading against these novices in the market. Currently, in global traditional financial markets, except for A-shares, the ratio of professional investors to retail investors is about 8:2.

Ye Yizhou refers to this as the "cognitive arbitrage" in the cryptocurrency market. In a 24-hour tradable cryptocurrency world, when global traders are trading the same asset simultaneously, their behaviors and trading logic are very different. This also provides professional traders with many opportunities to make profits, which are less common in traditional finance.

Unlike most veterans in the cryptocurrency space, Ye Yizhou was among the first in Hong Kong to apply for a cryptocurrency fund license and obtained the license in early 2022. His company also became the first investment institution in early 2023 to allow multi-strategy trading investment in cryptocurrencies in Hong Kong, known as a hedge fund.

Ye Yizhou told Tencent News "Qianwang" that in addition to reviewing the fund manager's capabilities, regulators will also carefully investigate risk issues within the multi-strategy, how to better protect investors' interests, and the fund's good trading record and behavior.

According to Tencent News "Qianwang," many funds in the Hong Kong market have not chosen the compliant route and are not in a hurry to apply for licenses from regulators because these individuals are trading with their own money or friends' money and are not currently raising funds from external sources, essentially acting as individual investors.

Among the funds currently approved in Hong Kong, only Frontier Youli has a complete trading record for a full financial year from early 2022 to now.

Ye Yizhou told Tencent News "Qianwang" that as a traditional finance professional, he and his team have firmly chosen the "regulated" route since the day they were established.

This is because Ye Yizhou hopes that in the future, his fund can cater to more institutional investors. Tencent News "Qianwang" learned that the current sources of funds for Frontier Youli, besides Ye Yizhou himself, also include some high-net-worth clients, such as Li Lin, the founder of the cryptocurrency exchange Huobi Group.

Ye Yizhou and his team have also been in contact with some old-money families in Hong Kong and even some leading private banks, hoping to find suitable product channels. Ye Yizhou told Tencent News "Qianwang" that the current fundraising pressure is not great, and they prefer to list fund products through institutions or family offices to attract wealthy individuals.

This may be related to Ye Yizhou's background in traditional finance. In addition to favoring regulation, he is more willing to deal with institutions. In his words, this is "bulk" listing of products, which can cover a sufficient number of wealthy individuals with demand.

According to Tencent News "Qianwang," these leading private banks indeed cover the vast majority of wealthy resources in Hong Kong and mainland China, but they have very strict requirements for the fund products they list, such as compliance, trading records, and reliable trading strategies, among which trading records generally need to be three years. Given the current situation in Hong Kong, the longest trading record is only one and a half years. Ye Yizhou's fund is no exception.

If Ye Yizhou and his peers want to enter the product shelves of leading private banks according to strict procedures, they will need to patiently wait for a year and a half. However, according to Tencent News "Qianwang," some Chinese financial institutions are actively promoting the listing progress of cryptocurrency funds.

A wealthy individual in Hong Kong once told Tencent News "Qianwang" that they are indeed interested in regulated cryptocurrency fund products and hope to allocate assets through institutions. Over the past few years, during the wild growth of the cryptocurrency market, these wealthy individuals have participated in some cryptocurrency investments, all of which have inevitably resulted in losses.