As part of the Digital Currency Council’s Continuing Education partnership with Inside Bitcoins, the DCC’s Sarah Martin interviews Jean-Marie Mognetti of the Global Advisors Bitcoin Investment Fund (GABI).
Sarah: Tell us about how and why you, Jean-Marie, got involved in Bitcoin and digital currencies.
Jean-Marie: Global Advisors has always been considered by investors, service providers and competitors as a special hedge fund. Over the years, the manager always kept an agile and lean configuration allowing to seize opportunities as it thinks fitted without the usual political conundrum. We were one of the first commodity managers back in the late 90s, one of the first managers algorithmic trading systems before CTA became fashionable. Such an innovation capacity is part of the firm DNA. Hence, getting involved with bitcoin either from a technology or a trading point of view was a very natural evolution for us.
Sarah: Did your team draw on its previous experience when launching this fund?
Jean-Marie: First of all let me say that this launch is the result of solid team-work of three long time partners, Daniel Masters, Russell Newton and I. We have built something very special over the last two years . We see parallels between the current state of bitcoin and the way the oil market developed in the early days. In oil we saw lots of volatility, lots of credit risk, illiquidity in the market, scant regulation and a generally rather chaotic. By the late 90s, the market was more sophisticated, but there was a limited amount of investment product available to institutional and ultra / high net worth investors (UHNW – HNW). So stage one is when a chaotic market turns into an organised market and stage two is the organised market spins off interesting products. The early stage products are often discretionary fund managers. In short our target investors look for three things, a clear explanation of the investment thesis, a team of expert and dedicated managers and a robust vehicle fit for purpose.
So today bitcoin is somewhat chaotic, illiquid, volatile, misunderstood, under-regulated and embryonic – but, like commodities had in early 2000, it has a very compelling forward-looking argument and that argument says this type of crypto currency or Blockchain technology is a much more advanced and sophisticated way of transferring value and assets amongst and between people.
You don’t know how you are going to get from today’s embryonic market to one where everyone adopts this new technology, but for a company in our position you need to have a belief system that screams “We are armed with the truth”, it will get there somehow and you then manoeuvre your way through time as that story unfolds.
In the oil market for example, my partners knew in 1999 that by 2010 we would need 50 per cent more oil production to satisfy the depletion we were seeing in global reserves and the demand from China. The only way that could happen was for the oil price to be higher. And the way it happens is here is the story here is the market. As investment managers, we recognize that story and package it in a way that investors can participate, appreciate and when they do it drives the price higher, and that higher price creates the economic activity that’s required under the original thesis. The rise of oil prices and other commodity prices was driven by investors, once prices had risen many new technologies emerged like wind power, solar, tidal, fracking, bio fuels and so on. None of this would have been possible if prices had not risen first.
So we see a great parallel between the oil markets and other commodity markets and what’s going on in Bitcoin now. Right now we are in the 1987 oil world if I look at how bitcoin behaves. I believe there is a very long runway ahead of where it is now – perhaps 10 years. I believe the destination is one where this kind of technology is widely adopted.
Sarah: What distinguishes Global Advisors in the marketplace?
Jean-Marie: Global Advisors Bitcoin Investment Fund (“GABI”) provides access to the bitcoin market for high net worth and institutional investors. While it is the case that bitcoin can be purchased by anyone relatively easily, GABI adds a number of unique features which make it attractive to its target client base. We believe the steps taken – including risk spreading amongst exchanges, segregation of the asset into cold storage, audited financials, and multi-levels of insurance protection – make GABI the most robust vehicle for acquiring and holding bitcoin.
Sarah: What are some of the biggest challenges that you have faced as a company? How have you overcome them?
Jean-Marie: In order to produce a truly robust product we needed to assemble a diverse team of service providers. Global Advisors (Jersey) Limited (the manager) did the initial work to set the strategy. We then needed to co-opt a number of partners in the areas of administration, regulation, audit, compliance, custodianship and banking. Our home jurisdiction, Jersey, has a wealth of such service providers however in almost every case the problematic history of bitcoin placed a hurdle in front of every relationship we sought to create. Our approach was to frame the debate in a “Jersey wide” context first and an individual context second. We succeeded, through conversations with the Government, Regulators, Consumer Protection and other public stakeholders in illuminating the opportunity in front of us as an Island to participate in a truly disruptive approach to finance. Jersey has a great history in finance but times are changing, there’s a focus on Fin-Tech as a way forward and we nailed bitcoin front and centre to this argument. So our first success was to get buy-in from the very top. Once this was achieved the effort dropped down to individual providers. In each case, we needed to sell the concept, the future opportunity and educate the partners who in all cases had no prior experience. This was a painstaking process and despite the plethora of partners available locally only a small number were prepared to go with us. In this regard, we applaud Moore Fund Administration, Carey Olsen Law and KPMG who all took a leap of faith with us. The good news is that all those partners have been rewarded with good business from us and more encouragingly tremendous interest from other bitcoin participants who are following our lead.
The great let down was our local banks. We knew the banking solutions would be the most sensitive given AML risks, history and pure competitive threat. Accordingly we went to our main bank last in our overall process, when all other aspects of operations, regulation, audit, compliance and custody were in place and our regulatory license had been granted. They turned us down, as did every one of the thirty banks on the Island. The UK clearing banks have closed ranks on bitcoin so our solution sadly had to be offshore (outside of Jersey). This was a great missed opportunity for our local finance industry – but so be it.
Sarah: What are you most excited about in digital currencies and blockchain technology right now?
Jean-Marie: There’s a strong narrative currently that “it’s all about the chain”. To some extent that’s true and some of the World’s great companies, NYSE, NASDAQ, CITI, Virgin, Paypal, Microsoft and so on are all realizing this. The focus for us remains bitcoin itself. We see it as a litmus test for all chain technology – if the chain is so good bitcoin has a clear role. It can compete in many areas of fiat currency but it can also do things fiat cannot do. The reason the bitcoin price has been floundering is partly momentum based and partly flow based. It rose exponentially and then bust – that burned and scared some investors. In addition there is, at current prices, $30m a month of new mining. Investment flows from retail and institutions barely match this number – but as our products take hold and new exchanges like Coinbase or itBit spread their influence, it will change. So it’s all about the price of coin from our perspective.
Sarah: What do you see as the greatest challenge facing the industry?
Jean-Marie: I think banking remains a challenge. It’s paradoxical that we see individual banks housing groups to shut down accounts involved in bitcoin while simultaneously housing groups to explore the use of bitcoin. There’s some clear restrictive, oligopolistic activity going on here. I am hoping that commercial banks look at the enormous strides forward the industry has made and change their stance. Banks and bitcoin will both do better in that case. Failing that and in extremis we plan to bring legal action under anti competition statutes and practises.
Sarah: What’s on the horizon for you? What can we look forward to seeing next from Global Advisors?
Jean-Marie: Our plan is to continue to expand and accelerate the marketing of GABI. We have interest from around the globe but not enough in-house resource to pursue. We are seeking some equity finance at the management company level and are currently engaged with the group of investors who have already acted in this space. Following this, we plan to roll out more investor products both in terms of new strategies and also new structures to fulfil our vision of “Professional Asset Management in bitcon”.