Vision Hill Active Crypto Indices - Methodology

Last updated: August 15, 2019

Expanding on our prior well-received quarterly benchmarking reports, we are proud to introduce our new Vision Hill Active Crypto Indices as a market standard benchmark for actively managed crypto and blockchain-focused hedge funds, institutional allocators, and sophisticated investors.

The Vision Hill Active Crypto Index (VH-ACI) is a reference index designed to be representative of the overall performance of all actively managed crypto and blockchain-focused hedge funds. We currently segment all crypto hedge funds into one of three categories, namely: 1) Fundamental, 2) Quantitative and 3) Opportunistic. The VH-ACI (Composite) aggregates all these strategies into one index at the headline level.

Sub-indices for each strategy are also available for anybody wishing to reference specific types of managers and strategies. The following sub-indices are designed to be representative of the overall performance of active crypto and blockchain-focused hedge fund managers within each of the following strategy classifications: Fundamental, Quantitative, and Opportunistic.

Index Name Ticker
The Vision Hill Active Crypto Index (Composite) (VH-ACI)
The Vision Hill Active Crypto Index: Fundamental (VH-ACIF)
The Vision Hill Active Crypto Index: Quantitative (VH-ACIQ)
The Vision Hill Active Crypto Index: Opportunistic (VH-ACIO)

All indices are owned and administered by Vision Hill. The Vision Hill Active Crypto Indices are non-investable reference indices designed to be representative of the overall composition of the crypto and blockchain-focused hedge fund universe. It is our intent for the Vision Hill Active Crypto Indices to become the market standard benchmark for all actively managed crypto and blockchain-focused hedge funds, institutional allocators, and sophisticated investors for the purpose of providing proper composite and sub-strategy relative benchmarking.

Key Features
  • Tracks the performance of active crypto and blockchain-focused hedge fund managers
  • High data integrity; self-reported GP performance only (no LP reporting)
  • Tracked, calculated, and maintained using Vision Hill proprietary models
  • Rules-based index methodology
  • Published quarterly with monthly reference data (with the goal of transitioning to monthly publications over time)
  • Equal-weighted and re-balanced quarterly

Guiding Principles

Data Integrity Vision Hill runs a disciplined tracking process and personally manages its relationships with each of the general partners included in these indices. Data is self-reported directly to Vision Hill from these general partners (there is no limited partner reporting). Vision Hill generally has quality touchpoints with each fund manager on a quarterly basis to confirm the integrity of the data provided, discuss performance and ensure each manager is not undergoing any style drift with respect to the classified strategy.
Diversification These indices are each equal-weighted; no sub-strategy is included that has less than 5 active data points at any particular time.
Representative These indices seek to provide proxies for the broader active crypto hedge fund landscape across multiple strategies.
Continuity These indices are intended to be responsive to the changing nature of the asset class in a manner that does not completely reshape the character of the indices from year to year.

Selection of Constituents

Index methodologies to determine whether a fund manager is eligible for inclusion in the VH-ACI is presented below:

1. Clearly Identified Strategy Classification
  • a. Fundamental

    Fundamental Long Only -  these are managers that employ extensive research and experiment with quantitative and qualitative metrics to determine what cryptoassets have the potential to accrue large amounts of value over time. These managers find assets they have high conviction in, and buy and hold those assets for a certain period of time. This is popular in both liquid and illiquid strategies (e.g., both public and private markets). This strategy may eventually expand to a sub-sector focus (e.g, dApps, NFTs, DAOs, TCRs, uncensorable value transfer, and more).

    Fundamental Long/Short  -  these managers similarly undergo extensive research in the space, but instead of only buying and holding assets they believe will accrue value, they also short-sell assets that they believe are expected to decrease in value. This is more popular in liquid markets.

    Hybrids -   in certain cases, managers possess a hybrid strategy where they are investing in high conviction projects in both liquid and illiquid (public and private) crypto markets. Some managers choose to only be long in both markets, while others choose to actively short-sell where they are able to.

  • b. Quantitative

    Directional  -  these are managers that run highly sophisticated quantitative models that produce either “risk-on” or “risk-off” trading signals that direct these managers to execute their discretionary investment strategies in an aggressive or passive way depending on the perceived market cycle. Momentum, sentiment, trend and some systematic algorithmic trading strategies also tend to be popular here. This strategy can be focused on a single digital asset, a basket of digital assets, or relative value trading between assets, but is largely reliant on a quantitative model.

    Market Neutral  -  these are managers that utilize strategies that remove or limit market risk while capturing alpha returns. Exchange arbitrage strategies capitalize on the price discrepancies between different exchanges geographically or on pair trades within the same exchange, while managed futures, developing derivative strategies, or HFT seek returns with minimized market risk. Systematic algorithmic trading strategies also tend to be popular here.

    Long Volatility  -  these managers focus on the Greeks, including Delta, Theta, Rho, Gamma and Vega to manage risk from the perspective of volatility. These managers typically enter into option positions that are long volatility whereby if volatility increases, the manager would be expected to outperform.

  • c. Opportunistic

    Credit  -  these are managers that are leveraging the traditional lending business model and applying it to this new asset class. Such managers purchase loans backed by digital asset collateral and earn interest/yields on these cash loans. This has been growing in popularity lately as many holders of digital assets want liquidity, but do not want to monetize their positions to trigger taxable events or give up the potential upside they believe these digital assets can achieve in the future.

    Active Network Participation / Generalized Mining  -   Crypto-networks provide financial incentives whereby a community is catalyzed to pull together and provision a decentralized digital good or service, self-organize in a specific way and then remunerate for either the contribution of that resource or pay for a specific resource on a network. Thus, this strategy entails crypto-network investors providing more resources than just capital, governance and operational partnerships —  investors are engaging in mining, staking, validation, bonding, curation, dispute resolution, node operation, network routing, and more to help shape the direction of networks they are invested in.

    Other - These are managers that are investing in a manner that would not be categorized as either Fundamental or Quantitative, but instead may be employing a new or different type of strategy that we would generally define as Opportunistic, yet falls outside credit or generalized mining. Given the digital asset industry is still nascent and constantly evolving, this category currently suits those managers that do not fit neatly in one of our current subcategories.

Vision Hill plans to take appropriate action where necessary to mitigate the impacts of style drift for any particular manager at any particular time.

2. Five Data Point Minimum for Each Strategy
  • a. For a strategy to be included in any of these indices, a minimum of five data points must be available for that particular strategy.

3. Thirty Data Point Minimum for Overall VH-ACI Index
  • a. Statistically significant sample sizes warrant a minimum of 30 variables. Vision Hill abides by this rule for purposes of the Active Crypto Indices.

  • As of the latest measurement period (June 30, 2019), approximately 50 funds were included in the Vision Hill Active Crypto Indices.

4. Consistency and Reliability of Reporting
  • a. For a fund manager to be included in any index, Vision Hill requires that fund manager to have a consistent and reliable reporting schedule, otherwise the fund manager may be eliminated from inclusion. Vision Hill will take appropriate action where necessary to mitigate the impacts of various biases such as survivorship basis, self-reporting bias, survivorship bias, and more.

  • Additionally, these Active Crypto Indices are published quarterly with monthly reference data. It is Vision Hill’s goal transition to monthly publications over time.

  • All values reflect net performance to the best of our knowledge. Where gross performance figures are provided, Vision Hill manually adjusts them to net performance figures according to a fund’s respective fee structure.

5. Equal-Weighting and Quarterly Rebalancing
  • a. All indices are equal-weighted and rebalanced quarterly. Eventually, when we transition to monthly publications, all indices will remain equal-weighted and will be rebalanced monthly. We believe equal-weighting and continuous periodic rebalancing sufficiently mitigates survivorship bias as new funds can be included at each rebalancing date. We also refrain from including any historical data for a given new fund prior to the inclusion date of that fund (said differently, data begins as of inclusion date) in any index to sufficiently mitigate backfill bias.

Quick Facts

Tickers
VH-ACI
VH-ACIF
VH-ACIO
VH-ACIQ
Review Frequency Quarterly
Base 100
Initial Base Index Date January 1, 2018
Frequency
Index levels are published quarterly, no later than T+45 after each quarter end, and include monthly reference data.
Example: April, May and June performance data will become available on August 15th, as August 15th is the 45th day following the end of the second quarter (June 30th).
Currency USD

Disclaimers

The Vision Hill Active Crypto Indices are non-investable reference indices designed to be representative of the overall composition of the crypto hedge fund universe. It is our intent for the Vision Hill Active Crypto Indices to become the market standard benchmark for all actively managed crypto and blockchain-focused hedge funds, institutional allocators, and sophisticated investors for the purpose of providing proper composite and sub-strategy relative benchmarking. The reference indices presented here are for illustrative and discussion purposes only, are exclusively the property of Vision Hill Asset Management, LLC and Vision Hill Group, LLC, and are not for distribution. The content provided herein should not be considered investment advice, and is not a recommendation of, or an offer to sell or solicitation of an offer to buy, any particular security, strategy, or investment product.