When Hamiz Mushtaq Awan started blockchain-focused alternative investment firm Plutus21 Capital in 2016, that was long before Bitcoin hit its all-time highest price of more than $63,000, making blockchain and cryptocurrency a household name.
The Dallas-based firm has around $60 million under its management and is seeing interest from other investors to advise their funds. And with the rise of popularity in the space, Plutus21 sees several new opportunities on the horizon, along with a few challenges as the blockchain industry matures.
“So much has changed since the first opportunities fund,” said Hamiz, who serves as founder and partner at the firm. “It was just a few years ago, but it feels like forever ago. The whole blockchain world has changed, and our business and our team has very significantly changed, as well.”
Plutus21 launched its first vehicle, its Blockchain Opportunities Fund I, in 2018. At the time, Awan said individual investors would typically give venture investment allocations of around 2 percent. The firm now has another blockchain opportunities fund, which, like the first, is a long-biased portfolio focused on liquid blockchain infrastructure and adoption trends, with more than $20 million invested in the vehicle. The second fund also has an anchor position in Bitcoin.
In addition to the opportunities funds, Plutus21 also manages a yield fund and an arbitrage fund; both focused on targeting inefficiencies in blockchain infrastructure. Awan said the latter is planning to shut down soon, as it has finished with its planned trades. While Plutus21 mainly invests in blockchain assets, it has also made more traditional equity investments in companies.
“Our strategy has evolved were, originally, we were just buying and holding digital assets like long-term fundamental strategy,” said Richard Raizes, Plutus21 partner and head of blockchain investments. “Over the last two to three years, we’ve realized there’s a lot of inefficiencies in this market, and while we both think there’s a great long-term story here… there are also other ways to make money. We realized, not only can we do longs, but we can also do shorts. we can also do other market-neutral strategies.”
Awan said that while Plutus21 can often be one of the most volatile investments from an investor’s portfolio, market volatility translates into making it one of the highest returns. Without disclosing specific figures, Raizes said numerous investors have said Pultus21’s funds are among their highest-performing investments, beating out other asset classes like venture capital. He added that those returns are typically seen after about three to five years.
Raizes describes Plutus21’s portfolio like a barbell, with a mix of large and small positions, with an average position of about three or four percent. Currently, Plutus21 has about 25 different positions across its funds. He said it reflects the fledgling state of the industry, where many concepts are brand new mixed with legacy technologies like Bitcoin, which has amassed millions of users in its more than a decade in existence. With its opportunities funds, the main thing the firm looks for is adoption trends and getting in at an early stage, which for Plutus21 is typically when a product at garnered at least 1,000 users.
“Our North Star is adoption for our fundamental portfolios, so what we’re looking for is the product to be already developed or at least the beta version of the product,” Raizes said. “We want to be the first investor in, once we get to that point.”
The pandemic has given a recent boost to the blockchain space and Plutus21, as well. Raizes and Awan attribute that to several factors. Like in other industries, they said the adoption of digital tools was accelerated by office closures and stay-at-home orders. Awan added that interest rate changes in Federal Reserve policies forced many investors to like into alternative or riskier assets, a trend he said can be seen by the recent rise or retail trading activity on platforms like Robinhood.
With more people now operating in the blockchain space, it is changing the investment landscape in the area as it becomes more institutionalized. Over the past couple of years, Raizes said the firm has seen large institutional investors getting in on the industry, attracted by popularity and the rising value of many blockchain assets. That has caused Plutus21’s investor base to shift from individual investors, entrepreneurs and executives at the beginning to more institutional investors, which has made more competition in the space and caused Plutus21 to look towards other strategies, like its yield-focused fund to generate consistent returns. The firm is now helping advise other funds, totaling more than $75 million, helping them with research and infrastructure. Hamiz said in some cases, and local hedge fund managers have given Plutus21 up to 20 percent of their portfolios in blockchain markets to invest with the firm’s help.
“At some point (investors) have to get exposure, and for the last few years, there’s been a lot of career risk for a manager actually to go into this space,” Raizes said. “We’re seeing the trend this year, where it’s almost like it’s going to be career risk if you don’t have a small allocation and start learning of this space. That’s just the beginning of this new trend of managers adding to their portfolios.
The growth Plutus21 has seen also translated to its team. Over the last year, the firm’s headcount has increased from around four people to a team of about 15. The firm is also looking to add more tech to its stack, with plans to launch a platform in the next six months to handle back-office functions, communications and more up-to-date information to investors.
“It’s easy to become complacent and be okay with how things are, but we have to continue to push ourselves to be innovative, provide services and a level of service that isn’t available,” Hamiz said. “We’re working hard and investing heavily into staying ahead of the game because I have no doubt in my mind that this will be a legitimate asset class, and we just have to put our minds together and be one of the dominate players in this fast-growing asset.”
