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Australia’s Premier Crypto Fund
Australia’s Premier Crypto Fund
Preface - What are Crypto Assets and Blockchain?
Bitcoin is digital money - a frictionless currency native to the Internet. It is tamper proof, not controlled by a nation state and
its rules are set out in software code. Bitcoin is a breakthrough in computer science, establishing trust between unrelated
parties over the biggest network in the world. Click here for a video on How Bitcoin Works (5 mins)
Crypto Assets are tokens that are needed to run decentralised networks called Blockchains. One commonly cited use case for
blockchains and Crypto Assets is a possible decentralisation of the Internet. The Internet enabled us to exchange information
on an open network, blockchains enable us to exchange value on open crypto networks. We will no longer need to trust our
data with large corporations or intermediaries. In the current web, Web 2.0, the value creation is happening at the layer where
the data is held, be it Facebook, Twitter or Google. As blockchains let us control or our data, the value will increasingly be
captured in these new blockchain networks. The decentralised web has been called Web 3.0 and we believe blockchains will be
a key ingredient in this vision.
Blockchain technology is a breakthrough in the way humans can operate networks: on a massive scale without the need for a
trusted third party.
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Contents
1. The Opportunity
2. Crypto & The Portfolio
3. Apollo Capital’s Investment Strategy
4. The Team
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The Opportunity
"Most technologies are better, faster, and cheaper but the economy doesn't
change. Blockchain is different. Different in a way we haven't seen in 600
years...more comparable to organisational coordination technology like
mechanical time & the joint stock company"
Professor Jason Potts, RMIT University, May 29 2018
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The Next Web
WEB 1.0
Emergence | Infrastructure Era
Static Web Pages
Niche, Not Scaled
Skepticism about the technology
Dial-Up Connection
High Barrier to Entry
People ‘went online’
Protocols unable to accrue value
Netscape, Altavista, AOL
1990
WEB 2.0
WEB 3.0
Consolidation | Closed Networks Era
Decentralisation | Open Source Era
Dynamic Web, i.e.
Social media, e-commerce, wikis, blogs
Scaled
Almost seamless & constant interaction with
mobile
Value accruing at application layer with closed
data networks
Google, Facebook, Amazon, Twitter
2000
Internet of value enabled by blockchains
Payment infrastructure embedded at the protocol
level
Smart Contracts removing third parties in decision &
execution
Value now able to accrue at the protocol layer
Bitcoin, Ethereum
2010
2050?
Web 3.0 is attractive for entrepreneurs as its governed by open protocols, rather than the walled gardens of the previous era.
1. The Opportunity
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The Business Model of the Internet Is Changing
WEB 2.0
WEB 3.0
Application Layer
In Web 2.0, value has been
captured In applications,
built on internet protocols
In Web 3.0, value has
been captured at the
protocol layer
Protocol Layer
HTTP, SMTP, TC/IP
Web Stack
The building blocks of the internet in Web 1.0 &
Web 2.0 were unable to capture value.
1. The Opportunity
Value Captured
Value Captured
Application Layer
Coinbase, Binance, CryptoKitties
Protocol Layer
Web Stack
Blockchain technology has given us a way to capture data and value in protocols while
keeping them decentralised, thus solving the ‘tragedy of the commons’
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Value Capture in Web 3.0
Equity
Applications
10,000s
Smart Contracts
1,000s
Stablecoins, Oracles,
File Storage etc
Blockchains
Crypto
Assets
1. The Opportunity
Internet
100s
10s
7
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Crypto Use-Cases - Digital Assets
Crypto brings ownership to the online world. We can now own our money, data, and goods, and are
able to freely trade these assets on the global market.
The first time in human history we are able to create a digital scarce asset with an inflation that is
programmed in software. An unseizable digital gold. Applications include micro-payments, remittances
and machine-to-machine payments.
Money
Currently, people have no ownership over their personal data online. Crypto enables personal
ownership of data at the protocol layer. This means people will be able to move between
applications seamlessly, and become sovereign online.
Personal Data, e.g. Online Identity
Digital Goods are unique digital objects that are enabled by blockchain technology. Just as we
own goods in the ‘real world’, we now can take ownership of digital goods. A potentially big
use case in for example games.
Digital Goods
1. The Opportunity
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Crypto Use-Cases - Smart Contracts
Smart contracts are digital agreements that are enforced without the need of a third party. These
decentralised applications have the potential to be disruptive to many different industries.
Apollo Capital has long thought of financial contracts as being low-hanging fruit for smart contract
technology. Derivatives trading and debt markets are being rebuilt.
Financial Contracts, e.g. derivatives
In 2018 alone, ICOs have so far raised US$10bn. Smart contracts democratises investing and
enable start-ups to collapse the cost of building networks by offering users a network stake in the
form of a token when application utility is low.
Capital Formation, e.g. ICOs
A Decentralized Autonomous Organization is a new way for us to organise activity. Based on
decentralisation and financial markets, these networks represent a new way to organise human
collaboration.
Decentralised Autonomous
Organisations, i.e. a new
business model
1. The Opportunity
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Crypto Use-Cases - Tokenisation
Blockchain-based tokenisation could be used in traditional markets to improve the way society
records ownership and trade assets, and thus re-engineer large swathes of today’s financial plumbing.
Crypto can allow for virtually immediate global payment and settlement for any asset that is tied to a
blockchain. This could alter how settlement and interbank trading occurs.
Fast, Cheap Global Payment & Settlement
Security tokenisation is able could increase the settlement speed, liquidity, of traditional securities such as
stocks and bonds.
Tokenised Securities
Tokenisation of real estate will enable fractional ownership and liquidity for this large asset class.
Tokenised Real-Estate
1. The Opportunity
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Early Mover Advantages Exist, But Not For Long
We are here
Consolidation
Flight to Capital To Winning Crypto Networks
Mature Asset Class
Price Stabilises
Growth
Adoption
Infrastructure built for wide
adoption
Institutional Money Enters Globally
Emergence
Bitcoin Whitepaper Released 2009
Retail Investor Driven
Infrastructure & Early Use-cases
Time
1. The Opportunity
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The Crypto Asset Class is Dwarfed by Incumbents
Crypto Assets
Gold
Bonds
Equity
Real Estate
~ 250 Billion USD
~ 7 Trillion USD
~ 40 Trillion USD
~ 100 Trillion USD
~ 200 Trillion USD
1. The Opportunity
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Crypto & The Portfolio
“Diversification is the one free lunch of investing, and when you see a
free lunch, the only rational thing to do is eat"
Cliff Asness, Managing Principal and CIO at AQR Capital Management
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Crypto Does Not Correlate with Existing Asset Classes
Bitcoin (BTC)
Ethereum (ETH)
Litecoin (LTC)
Ripple (XRP)
Crypto Portfolio
Australian Equities
0.02
0.10
-0.05
0.01
0.03
Australian Bonds
0.20
-0.01
-0.04
-0.11
0.09
International Equities
0.03
0.07
-0.10
-0.06
0.00
US Equities
0.03
0.05
-0.08
-0.09
-0.01
International Bonds
0.15
0.15
0.16
0.02
0.16
Source: Apollo Capital; Period 02 Jun 2017 - 8 Jun 2018
Not indicative of future returns or correlations
Crypto assets unique characteristics means investors can capture potential growth while
limiting overall porfolio risk.
2. Crypto & The Portfolio
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Efficient Frontier, Optimised
Efficient Frontier including crypto assets
Modern Portfolio Theory looks at returns, volatilities, and correlations of
assets, and attempts to place different combinations of each together to
mitigate overall portfolio risk.
An ‘efficient frontier’ of portfolios can be built, where returns are
optimised per unit of risk.
Perceived Efficient Frontier
Because of this we believe that the efficient frontier shifts up if we
include crypto assets in our portfolio.
Put simply, most investors are missing out on a free lunch.
Return
As we’ve seen the crypto asset class is uncorrelated to other asset
classes, and thus can provide a diversification benefit.
Risk
2. Crypto & The Portfolio
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135%
Comparable Returns in Hypothetical Diversified Portfolios | January 2016 - Apr 2018
115%
Equities 55% | Bonds 35% | Crypto 10%
Percentage Return
95%
75%
Equities 57.5% | Bonds 37.5% | Crypto 5%
55%
Equities 59% | Bonds 39% | Crypto 2%
35%
Equities 60% | Bonds 40%
15%
-5%
Jan-16
Mar-16
2. Crypto & The Portfolio
May-16
Jul-16
Sep-16
Nov-16
Jan-17
Mar-17
Time
May-17
Jul-17
Sep-17
Nov-17
Jan-18
Past performance is not an indicator of future performance
Mar-18
May-18
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Comparable Returns in Hypothetical Diversified Portfolios | January 2016 - March 2018
Portfolio
60% Equities, 40% Bonds
With 2% Crypto
With 5% Crypto
With 10% Crypto
Total Return (Cumulative)
17.10
34.00
63.30
124.40
Total Return (Annualised)
7.00
13.40
23.40
41.40
Risk (Annualised Standard
Deviation)
5.69
6.41
9.12
15.19
Sharpe Ratio (Return per unit
of risk)
0.77
1.70
2.20
2.60
Return contribution of
portfolio due to crypto
allocation (in blue)
N/A
Source: Apollo Capital
Not indicative of future returns or correlations
2. Crypto & The Portfolio
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Our Investment Strategy
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We are a Multi-Strategy Fund
Established Crypto
Assets
Selective Pre-Listed Projects
Statistical Arbitrage
Event-based Trading
• Multi-strategy Fund
• Approximately 70-90% of assets in actively managed liquid crypto positions; up to 30% in early stage projects.
• We are extremely selective with our ICO investments. Our size and network allow us to secure allocations to the most
promising ICOs, often at rounds unavailable to retail investors.
• Opportunistic trading to augment returns
• We diversify portfolio risk between between 1. Core infrastructure categories (see next slide) 2. Key technologies for
blockchain 3. Developer teams (especially important for early stage projects)
3. Apollo Capital’s Investment Strategy
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Where We Invest
We invest in open source, decentralised protocols. Crypto assets that power infrastructure protocols - the foundation of Web 3.0.
We believe these represents the largest potential market among crypto assets. Below our categories of focus:
Category
Example*
Store of Value
Bitcoin
Currency
Nano, Algorand
Smart Contract Platform
Ethereum, EOS, Dfinity
Security Token Platforms
TrustToken, Swarm
Network Commodities
Sia, Orchid, Chia
Interoperability
Aeon, Cosmos, Polkadot
Stable Cryptocurrencies
MakerDao, Basis
Decentralised Exchanges
0x
*Please note that these are examples of these categories and not necessarily investments of Apollo Capital.
3. Apollo Capital’s Investment Strategy
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Properties of Our Investments
Apart from the network effect, we believe crypto assets can be evaluated along 10 core
characteristics. Clear tradeoffs between these defining features exist. We are building a diversified
portfolio to capture a wide exposure to protocols optimising on different variables:
1
Censorship resistance
2
Privacy features
3
Throughput capacity
4
Level of decentralisation, trustlessness, & permissionlessness
5
Monetary policy
6
Token Incentivisation Architecture
7
Governance design
8
Development funding mechanism
9
Transaction finality time
10
Turing completeness
3. Apollo Capital’s Investment Strategy
Crypto assets are based on
open source code. It’s important
to recognise that some features
can be replicated (‘forked’) while
others are likely to remain part of
the defining feature of the crypto
asset in question.
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How Apollo Values Crypto Assets
We employ a suite of valuation techniques that help determine value in crypto
networks.
1
2
3
4
5
The Equation of Exchange - i.e. MV=PQ for
currencies and utility coins.
An example of Metcalfe’s Law (white) in action, tracking the price
of ether (blue)
1400.00
Asset Replacement - i.e. M1, Gold, etc.
1050.00
Metcalfe’s Law - i.e. network value
On-chain Metrics - i.e. the NVT Ratio, often referred
to as the PE Ratio for crypto assets
Value of Governance - i.e. cost of controlling the
network
3. Apollo Capital’s Investment Strategy
700.00
350.00
April 2017
April 2018
0.00
Source: Apollo Capital
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The Apollo Capital Fund
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Apollo Capital removes the pain-points for
investing in this fast-paced, new, and complex
asset class.
23
We Remove the Pain Points in this New & Complex Market
Ease of Investment
Experience
4. The Fund
Compliance & Tax
Hedging
Research
Reporting
Trading
Security
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We offer Investors Best in Class Custody
Majority of crypto assets in off-line, encrypted, ‘deep cold’ storage
Wallet
Multiple
unique
3 out of 5
decryption
Keys required to
keys
4. The Fund
Wallet
move funds
Multiple backups of encrypted
wallets
Wallet
Custody analysed by third-party
Engaged with leading data security
crypto expert, Eric Wall
firm SecureWorx
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Team
The team at Apollo Capital bring a unique
combination of funds management, venture
capital, and crypto experience
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Henrik Andersson, CFA - Chief Investment Officer
17 years global financial markets
experience across three continents, with
close to a decade on Wall Street
Extensive experience in investment
banks, hedge fund, and
crypto investing since 2013
4. The Team
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Henrik Andersson, CFA
Chief Investment Officer
Domenic Carosa, MEI
Non-executive Chairman
Tim Johnston, CFA
Managing Director
James Simpson
Amelia Zimmerman
Kevin O’Hara
Analyst
Marketing
Advisor
Rupert Hackett
Michael Parnell
Holger Arians, MBA
Advisor
Advisor
Advisor
3 full time investment professionals
Regular investment committee meetings
Advisors connected to the best deal flow
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Fund Terms
Investors
Minimum Investment
Wholesale Clients
Applications
Monthly
$50,000
Redemptions
Quarterly
Fund Management Fee
2.0%
Recommended Minimum Investment Term
Performance Fee (subject to high water mark)
20.0%
Distributions
4. The Fund
3 years
6 monthly
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Our Partners
Tax Advisors
Auditors
4. The Fund
Trustee Services
Legal Advisors
Administration
Security Consultants
Next Steps
To invest, please read the Information Memorandum
The application form can be found online
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Appendix
For the hypothetical portfolios:
•The time Period is from December 31 2016 - April 31 2018
•Equities are derived from an Index of the Australian ASX, and bond exposure is derived from the Australian bond index
•Crypto assets are a portfolio of Bitcoin (60%), Ethereum (20%), Litecoin (10%), and Ripple (10%)
•Monthly Rebalancing
Custody:
•For a more in depth look into our best in class custody, request a copy of ‘Summary of Apollo Capital Security Policies’
Other:
•The Fat Protocol thesis was originally devised by Joel Monegro in 2014 while he was at Union Square Ventures. For the first blog post
explaining this concept, please click here
•A more detailed expiation of the evolution of the Internet, see this article
•Correlations were based on weekly return data from July 2016 - September 2017
Further Resources:
•Request a copy of our ‘Crypto Asset Guide'
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Disclaimer
This presentation has been prepared by Apollo Capital Management (ACN 623 059 227) (Apollo Capital). The purpose of this presentation is to provide the recipient of this presentation (Recipient) with general information concerning the Apollo Capital
Fund (the Fund) to assist the Recipient to make its own assessment of a possible investment in the Fund and decide whether to proceed with further investigations. It is supplied to the Recipient on the understanding that it is not to be used for any other
purpose.
This Presentation contains statements, opinions, projections, forecasts and other material (forward looking statements), based on various assumptions. Those assumptions may or may not prove to be correct. None of Apollo or it’s respective officers,
employees, agents, advisers or any other person named in the Presentation make any representation as to the accuracy or likelihood of fulfilment of the forward looking statements or any of the assumptions upon which they are based.
One CC Pty Limited ACN 623 438 004 (One CC) is the trustee of The Apollo Capital Fund (Fund). The information contained in this Presentation was not prepared by One CC but was prepared by other parties. While One CC has no reason to believe
that the information is inaccurate, the truth or accuracy of the information contained in the Presentation cannot be warranted or guaranteed. Anyone viewing the Presentation must obtain and rely upon their own independent advice and inquiries.
Investors should consider the Information Memorandum (IM) dated 31 January 2018 issued by One CC before making any decision regarding the Fund. The IM contains important information about investing in the Fund and it is important investors
obtain and read a copy of the IM before making a decision about whether to acquire, continue to hold or dispose of units in the Fund.
NOT AN OFFER
This presentation does not constitute an invitation, recommendation or offer by Apollo Capital, its shareholders or any of their respective agents, affiliates, related bodies corporate, officers, directors and employees for the investment in the Fund. This
presentation does not advertise any such information or offer. This document is not a prospectus, product disclosure statement or other disclosure document (as each of those terms are defined in the Corporations Act 2001 (Cth)) and does not contain all
of the information that would be contained in a prospectus or other disclosure document prepared under the Corporations Act 2001 (Cth). Recipients considering in investing in the Fund must obtain and read through the Apollo Capital Fund Information
Memorandum.
NO REPRESENTATION OR WARRANTY
No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness or correctness of the statements, estimates, opinions, conclusions and other information contained in this presentation. Apollo Capital does not have
any responsibility to update or correct any information contained in this document.
To the maximum extent permitted by law, Apollo Capital and its affiliates and related bodies corporate, and their respective officers, directors, employees, agents and advisors (relevant party), accept no responsibility for any information provided in this
presentation, including any forward looking information, and disclaim any liability whatsoever (including, without limitation, any liability arising from fault or negligence) for any direct or indirect loss or damage howsoever arising from any use of this
presentation or anything contained in or omitted from this presentation or otherwise arising in connection therewith. Delivery of this presentation does not imply and should not be relied upon as a representation or warranty that there has been
PAST PERFORMANCE
Past performance is not a reliable indicator of future performance.
CONFIDENTIALITY
This presentation is for limited circulation and is provided to selected Recipients on a strictly private and confidential basis. No part of this presentation may be circulated, reproduced or provided to any third party, and the matters referred to in it must
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being authorised by Apollo Capital.
ACCEPTANCE
Each attendee of this presentation or any entity or person receiving this document represents, warrants and confirms that it accepts the qualifications, limitations and disclaimers set out in this Disclaimer.
A copy of the IM may be obtained from https://www.apollocap.io/.
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Australia’s Premier Crypto Fund
Australia’s Premier Crypto Fund