In a significant move within the cryptocurrency investment landscape, Pythagoras Investments has announced the closure of its flagship Absolute Return fund to new capital inflows, effective February 2025. This decision follows the fund’s impressive performance, achieving a 40% year-to-date gain through November 30, 2024, and attracting an additional $30 million in commitments, bringing its total assets under management to $120 million.
The Absolute Return fund’s robust performance includes a notable 13% gain in November alone. Pythagoras Investments employs a market-neutral, pure arbitrage strategy, capitalizing on inefficiencies within the nascent crypto markets. This approach focuses on extracting alpha without exposure to market beta, allowing the fund to generate positive returns irrespective of broader market conditions.
The firm’s arbitrage strategies encompass funding rate arbitrage, cross-exchange arbitrage, and decentralized finance (DeFi) arbitrage. By maintaining a dollar-neutral, non-directional stance, Pythagoras aims to achieve high risk-adjusted returns with low volatility, even amidst the inherent fluctuations of the cryptocurrency market.
The decision to close the Absolute Return fund to new investments stems from capacity limitations. As the fund’s assets have grown, maintaining its market-neutral strategy becomes more challenging without impacting performance. By capping the fund’s size, Pythagoras seeks to preserve its ability to effectively exploit market inefficiencies and sustain its track record of positive returns.
Pythagoras Investments manages approximately $160 million in total assets across multiple funds, each employing distinct strategies:
- Arbitrage Fund: Managing over $40 million, this fund has achieved nearly a 15% year-to-date gain.
- Quant Long Short Strategy: This strategy has delivered more than a 26% year-to-date return, leveraging machine learning models to execute long and short positions simultaneously.
- Alpha Long Biased Strategy: Notably, this strategy has returned 196% year-to-date, reflecting the firm’s adeptness in navigating the crypto market’s volatility.
These funds remain open to new investors, offering diverse avenues for exposure to the cryptocurrency market through Pythagoras’s varied investment approaches.
The broader crypto hedge fund industry has experienced a resurgence, buoyed by Bitcoin’s over 130% gain in 2024, elevating its market capitalization to approximately $1.9 trillion.
Other notable performers include:
- Nickel Digital Asset Management: The London-based fund has achieved a 29% year-to-date gain.
- Tephra Digital: Backed by Jefferies’ Leucadia Asset Management, this U.S.-based fund has reported nearly a 40% gain through October.
Additionally, a report by PwC and the Alternative Investment Management Association indicates that 47% of traditional hedge funds now have crypto exposure, with 58% utilizing derivatives to gain such exposure.
Absolute return funds aim to generate positive returns regardless of market conditions, employing various investment techniques to achieve this goal. These strategies offer diversification benefits, lower volatility, and potential positive returns across different market environments. However, they may also involve higher fees due to the specialized knowledge and active management required.
Pythagoras Investments’ decision to close its Absolute Return fund to new capital underscores the firm’s commitment to maintaining performance integrity amid significant asset growth. The fund’s impressive returns reflect the efficacy of its market-neutral, arbitrage-focused strategy in the evolving cryptocurrency landscape. As the crypto hedge fund sector continues to mature, Pythagoras’s disciplined approach serves as a model for balancing growth with strategic capacity management.
Investors seeking exposure to the cryptocurrency market through Pythagoras’s methodologies can consider the firm’s other funds, which remain open to new investments. These offerings provide diverse strategies tailored to navigate the complexities of digital asset markets, aligning with the firm’s overarching objective of delivering positive, risk-adjusted returns across varying market conditions.