The Hedge Fund Journal spoke with the leading lawyers of Schulte Roth & Zabel’s (SRZ) Blockchain Technology & Digital Assets Group. The growing interest in cryptocurrencies is among the many trends the lawyers will discuss at SRZ’s 27th Annual Private Investment Funds Seminar in New York in January 2018.
This Q&A features: Stephanie R. Breslow, SRZ partner, co-head of the Investment Management Group and a member of the firm’s Executive Committee; Brian T. Daly, SRZ partner in the Investment Management Regulatory & Compliance Group and Seetha Ramachandran, SRZ partner in the Litigation Group, all also members of the firm’s Blockchain Technology & Digital Assets Group.
Q. How do you start up a fund to invest in digital assets and blockchain technology?
Stephanie R. Breslow: Digital assets and blockchain technology are creating novel investment opportunities. Digital asset funds are privately placed, so there are rules about how they can be advertised and offered, and who the investors can be. Sponsors haven’t yet been able to do retail public offerings in this space.
Privately placed funds pursue a variety of strategies, including investing in a single digital currency, strategically investing in multiple digital currencies, investing in initial coin offerings (ICOs) or in venture opportunities relating to blockchain technology, and acting as a fund of funds into other funds in the space.
Your choice of strategy will determine the best choice of terms, with liquidity ranging from almost daily liquidity (for funds that basically act as wallets) to locked-up, private equity structures (for funds that invest in venture-stage companies). Fund sponsors should be aware that the tax and regulatory treatment of these assets is in flux.