Galois Capital, a hedge fund whose founder is credited with recognizing the collapse of cryptocurrency luna this yr, has been caught off guard after near half its belongings had been left trapped on crypto change FTX, which filed for chapter safety on Friday.
Galois co-founder Kevin Zhou wrote to traders in latest days, in a letter seen by the Financial Times, that whereas the fund had been in a position to pull some cash from the change, it nonetheless had “roughly half of our capital stuck on FTX”. Based on Galois’s belongings beneath administration as of June, that would quantity to round $100mn.
“I am deeply sorry that we find ourselves in this current situation,” wrote Zhou. “We will work tirelessly to maximise our chances of recovering stuck capital by any means.”
He added that it might take “a few years” to get well “some percentage” of its belongings.
FTX on Friday stated Sam Bankman-Fried was resigning as chief govt, after failing in a last-ditch effort to safe a rescue package deal. It follows a tumultuous week through which the change admitted it was unable to fulfill buyer withdrawal calls for with out exterior funds, elevating fears that shoppers might face large losses.
FTX’s Chapter 11 chapter submitting in a federal courtroom in Delaware contains FTX’s US entity, Bankman-Fried’s proprietary buying and selling group Alameda Research and about 130 affiliated corporations. His empire was valued at $32bn simply months in the past.
Industry insiders say that the actual fact FTX was utilized by so many hedge funds and seen as one of many world’s safer crypto buying and selling venues means many managers could have cash caught on the change.
Galois didn’t instantly reply to a request for remark.
Galois is likely one of the business’s greatest crypto-focused quant funds and, as of this summer time, it was managing greater than $200mn in belongings. A significant a part of its buying and selling exercise is as a market maker, permitting it to make tiny positive factors on different traders’ trades.
Zhou, who labored at digital change Kraken earlier than establishing Galois, is well-known for his early criticism of cryptocurrency luna and its linked stablecoin terraUSD, forward of their $40bn collapse in May.
He stated within the letter that his fund had been left with the cash in FTX as a result of it had “a ton of open positions” that it needed to shut and as a result of “underappreciating the solvency risk with holding our funds at FTX”.
He added that if FTX did file for chapter, then Galois would turn into a creditor.
If that occurred, then “I expect we will recover some percentage of our assets on FTX over the course of a few years,” he stated.
