Newport Beach-based Palmy LLC said it opened the first cryptocurrency investment fund based in Orange County.
The Palmy Crypto Advantage Fund, which Palmy started in the fourth quarter, has $3.5 million under investment and is trying to raise up to $25 million, according to founder Ryan R. Knott.
“We believe that cryptocurrency, especially blockchain, is really the wave of the future,” Knott said in a phone interview. “We believe it’s going to a cashless society. It will really change the landscape.”
When asked about the speculative nature of the currency and doubts about the value of cryptocurrencies, Knott responded, “The news is sensational on both sides of the equation. There is quite a bit of irrational exuberance.”
The fund has three tranches, including one similar to an index that invests in the top 20 cryptocurrencies; one that’s an active manager; and a third that’s focused on smaller cryptocurrencies.
Whereas most hedge funds charge 20% of profit in addition to a 2% management fee, Palmy charges 40% if returns are higher than 50%. Knott’s slideshow to investors claims returns of 217% to 847%.
The fee structure is typical of funds in the crypto industry, which Knott said requires strategic knowledge and can therefore command higher charges.
Investors have to invest for at least a year, though they do receive quarterly distributions, he said.
Knott previously ran SGB Holdings LLC, which invested in precious metals until he closed down the company in 2014 after a drop in prices.
He then began trading in cryptocurrencies on his own account and decided to open a fund to accredited investors under the Securities and Exchange Commission’s 506c, which is generally limited to individuals with net worths above $1 million and who are made aware of the risks.
As for the name, Knott said there’s no particular reason for the choice, noting that, “You have a lot of odd names in the space. There’s not a whole lot of rhyme or reason.”
