Two Cayman crypto funds operated by Invictus Capital have been caught out by last month’s implosion of stablecoin TerraUSD, while two others are facing a freeze on withdrawals imposed by crypto lender Celsius Network.
Invictus Capital itself is attempting to undergo a restructuring and has appointed voluntary liquidators for its Cayman management holding company New World Holdings, according to a statement sent to investors on Wednesday, 22 June.
Having operated since 2017, Invictus only migrated its funds into a fully-regulated mutual fund structure in Cayman in March this year.
Less than two months later, Bitcoin Alpha (IBA) and Stable Growth (ISG) suffered significant losses from the collapse of TerraUSD (UST).
The algorithmic stablecoin, which aimed to hold its value through a network of arbitrageurs rather than reserves of cash, failed to maintain its peg to the US dollar in May.
As a result, Invictus suspended redemptions and the calculation of net asset values for its Cayman Islands-based crypto funds.
Bitcoin Alpha aimed to outperform Bitcoin by using options and lending strategies, while Stable Growth held at least 95% of fund assets in US dollars and stablecoins “to obtain market-neutral and lending positions which earn interest daily”, according to the company’s fact sheets.
Invictus explained on a dedicated investor FAQ page that prior to the meltdown it had allocated more funds to UST because the yields were higher than those offered on other stablecoins. At the same time, the investment team had. like other asset managers, considered UST to be a low risk investment. During the five-day collapse of the stablecoin, the investment management team believed UST would regain its peg.
When this did not happen, the Stable Growth fund exited its positions at $0.20 per UST.
The undoing of the TerraUSD and its sister token Luna wiped out almost US$45 billion in market capitalisation within one week.
At the time, Invictus Capital told investors that the “decoupling of the UST Stablecoin and other market events has had a material impact on the IBA and ISG fund portfolio performance… and the smooth operation of our working capital.”
To work through the situation, Invictus engaged restructuring firm Alvarez & Marsal, as well as law firms Walkers and Appleby.
In its latest statement to investors, on 22 June, Invictus said shareholders of the company had passed a written resolution on 5 June to put the management holding company into voluntary liquidation.
The company appointed Alexander Lawson and Barry Lynch of Alvarez & Marsal in Cayman as joint voluntary liquidators.
Former co-founder and CEO Daniel Schwartzkopff told OffshoreAlert that he exited the business in April and was no longer a director, employee or officer of the company.
His replacement as CEO, Haydn Hammond, a former sales manager at Invictus, has voluntarily resigned as director of Invictus Capital Financial Technologies SPC, the company’s Cayman-based investment vehicle, Invictus said in its 22 June investor update.
His position on the board of the segregated portfolio company is taken over by Cayman independent director Casey McDonald of Calderwood. The other two independent directors are Petri Basson and Danielle Faul of Hash Consulting.
Two other Invictus funds, Crypto20 SP (C20), a tokenised crypto index fund that tracks the performance of the top 20 cryptocurrencies, and Crypto10 SP (C10), a hedged crypto index fund of the top 10 cryptocurrencies, “were not significantly impacted by the collapse of the UST stablecoin and their performance remains largely correlated with broader market movements”, according to the crypto asset manager.
They are, however, exposed to “the current liquidity issues experienced by the Celsius network upon which a material proportion of C20 and C10s assets are currently held”.
Crypto lender Celsius Network suspended withdrawals last week amid reports it was running out of liquidity. The digital currency platform that allows users to lend their digital currency in return for yield on their deposits warned it would take time to stabilise operations in the current market environment, which has seen large digital asset sell-offs.
The value of Bitcoin has fallen from as high US$67,000 in November 2021 to below US$20,000 this week.
Invictus maintains that the C20 and C10 funds continue to be operational and viable, but net asset value calculations remain suspended.
The company said the investment manager “has contacted Celsius to seek a solution and will provide investors with updates as this situation develops”.
Invictus said the directors, voluntary liquidators and the Invictus team were seeking the appropriate operating structure and ownership to keep the two funds operational as regulated entities.
In contrast, based on the impact of UST’s demise on the Bitcoin Alpha and Stable Growth portfolios, the directors and voluntary liquidators agree that these funds should be closed, Invictus said.
“In order to close the IBA and ISG funds, the service providers will work with the existing fund management team to wind down their respective portfolios and distribute realisations to investors, net of closing costs for both respective funds,” the company said.
The four funds are held in segregated portfolios within the mutual fund, Invictus SPC, which is not in a formal liquidation process. The funds could therefore be treated individually, the company said.
Invictus Capital reported in May 2021 that it had US$112 million in assets under management. According to data shown on the Invictus Capital’s website, the assets of the four Cayman funds have dropped by at least 59% to $31.5 million from $77.6 million on 29 April.
While registered in Cayman, Invictus Capital is operated largely from South Africa. Invictus Asset Management Limited, the fund manager of the four crypto funds is based in the BVI.
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