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Editors Note: Invictus Capital was a victim of the Terra fallout in November 2022. The original article, one year prior, was first published in CityAM

It takes a certain type of banker to jump into crypto – one with a history of innovation, bravery and a true grasp of risk. Oh, and back that up with research, research, research. Haydn Hammond is one such banker.

Hammond’s banking pedigree is near on perfect. He began his career as a quantitative analyst based in Cape Town working for a large asset manager but quickly found that he was far more interested in the sell side rather than the buy, and so he moved from asset management to investment banking.

In 2001 he started as the sales manager for Barclays Capital South Africa looking after relationships with large pension and hedge funds.

“Basically, we sold investment products such as bonds, swaps, options – predominantly in fixed income and foreign exchange – to our large asset managers and pension funds domicile in South Africa.” he recalled.

By 2005, he moved into offshore hedge and pension funds selling into the global emerging market products, which included South African and sub Saharan Africa, and two years later he was sales director for Barclays in London, adding Europe and America to his patch.

Hammond joined the French investment bank Natixis in 2014 moving into new emerging market proprietary trading across pan European global markets.

“From the minute I moved into investment banking in 2001, I totally thrived. Emerging markets are at the edge of innovation and the frontier emerging markets are the most risky and rewarding sector. Both Barclays and Nixitis are very big in this sector,” he said.

“It was so exciting to work with countries who were doing their first sovereign debt issues. We were the lead arrangers. These markets are extremely volatile, there are patches of poor liquidity resulting in price spikes on both the upside and the downside.”

Introducing foreign investors

Hammond was involved in creating markets, building out yield curves and launching new products. Many of the clients were unable to access these markets, so Hammond and his team did the honours and actively helped the balance sheet of these markets by introducing foreign investors.

“We provided liquidity, helped these markets grow and assisted governments looking to raise debt.”

There were challenges too as many of these markets were unknown, and the legal, regulatory and compliance requirements unclear.

“Even the research on these markets was relatively new, maybe only data from a couple of years, so it meant the investors had to get up to speed very, very quickly,” he pointed out.

“But that added to the exuberance and the excitement.”

Risk assessment is still core to Hammond’s approach. Where there is high risk there is also high rewards and he had to make sure he offered a calculated risk.

“Doing the groundwork we were able to grow the balance sheets of new companies and of treasuries of those countries – and provide high returns to the investors. It was a win-win scenario if handled responsibly.”

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Given Hammond’s work on Frontier Emerging markets, it was striking to him that no one was speaking about Bitcoin in banking circles.

“Sure, in our spare time we were all looking at Bitcoin, but no one within the banking realm even mentioned it. FinTech was still a relatively new term, but no one was talking about having a digital asset within a bank or a portfolio. No one.”

Around 2017 when Bitcoin was having that strong rally, it started to appear on people’s radar but only in a negative fashion in banking circles. Hammond remembers Jamie Dimon from JP Morgan Chase calling it a scam and that no one would touch it in-house.

There was some interest but the crypto winter that quickly followed 2018 meant that it was again largely ignored until the end of 2020 and the price rise drew attention.

“In fact, the market completely rejuvenated and that’s when we saw the beginning of real adoption by institutions of digital assets and cryptocurrencies,” he smiles.

“I could see that this asset class was growing and then I was approached by Invictus. I was very tempted, but I needed to do my homework.”

Accordingly, Hammond rang some of the world’s largest asset managers and some of the world’s biggest pension funds.

“Most of them quite frankly said they had no allocation; they were interested but didn’t want the responsibility of doing it inhouse but would be interested in finding a trusted advisor – someone who understood banking but also could bridge across to crypto. I knew I hit the sweet spot and that was the reason I joined Invictus.

“I haven’t looked back since; it’s just been moving at an incredible pace, and I’ve learned so much. For me, digital assets are the future.”

Hammond appreciates that cryptocurrencies can literally be born overnight and that everything moves at lightning speed. He reckons there hasn’t been a birth of a serious alternative asset class since the evolution of the gold markets, until now. Comparing both, cryptocurrencies have a market cap of just over $2 trillion while gold is at $11 trillion; the speed of the growth of the former in just over a decade is very compelling.

Increasing the pace

As more and institutions become familiar with cryptocurrencies, with Bitcoin and other digital assets, and start to incorporate them in their more traditional portfolios, the pace is going to get even faster.

Hammond is encouraging institutions holding zero digital assets to consider moving them to nearer five per cent of their portfolios. This encouragement is again based on research. A recent study from the CFA Institute suggested that a two per cent weighting of Bitcoin in a portfolio up to as much as five per cent will return strong risk-adjusted returns.

In fact, Morgan Stanley took issue with that report and did their own due diligence – but came back with the same evaluation. Then a Yale professor came up with similar recommendations – actually suggesting that six per cent was a better percentage to hold.

Family offices and smaller funds are incorporating digital assets into their portfolios and Hammond believes that once regulation is sorted out, so too with the large pension funds.

“I think regulation will allow specific parameters for digital currencies to be incorporated within portfolios. And that regulation will provide a degree of safety and comfort and trust. And once we can tick some of those boxes, we’ll see some of the larger pension funds that manage life assets on a much more prudent basis, come in and start to acquire digital assets.

“2022 is going to be a very, very significant year for regulation and the institutional adoption of crypto assets in general.”

Editor's note: 2022 proved to be a very significant year for different reasons.