Tuesday, January 31, 2023

Scaramucci on crypto, hedge funds and politics: 5 takeaways

SkyBridge Capital founder Anthony Scaramucci was the guest on episode six of the Alternative Fund Insight podcast. Here are five key takeaways.

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1. SkyBridge’s FTX deal “sends a message”

Days before this year’s SALT conference started in New York, it was announced that FTX, the cryptocurrency exchange founded by Sam Bankman-Fried, would be taking a 30% stake in SkyBridge Capital. Scaramucci’s firm, which historically allocated to hedge funds, has pivoted to crypto and suffered steep losses this year.

“[The deal] would boost our capital base, it would send a message to people about our strength,” said Scaramucci. About $40m of the proceeds were invested in crypto as a balance sheet investment to signal a “high conviction in cryptocurrency and the state of web3,” he added. FTX has a three-year option to buy 85% of the firm.

The deal was hammered out by Scaramucci and Bankman-Fried, the FTX founder and crypto billionaire, during a two-hour lunch at Costa, a Mexican restaurant in Nassau, last month. Bankman-Fried lives in the Bahaman capital and Scaramucci happened to be passing while on a Disney cruise with his family.

Scaramucci laughed off a New York Post cartoon showing him sinking under the weight of his crypto investments: “I wish I owned as many bitcoins as are pushing the SS Mooch down!”

2. Crypto will succeed — in the long term

Scaramucci likened the volatile cryptocurrency industry to the early days of automobiles, steel and the internet. “If you have the strength and discipline to hang in there you are going to be well rewarded by these investments.”

The long-term success of crypto is “inevitable,” he said. “You are going to bypass things like American Express, Mastercard and Visa. You are going to pay the waiter at the restaurant directly. There will be huge economic efficiencies and cost savings.”

3. SkyBridge will remain in hedge funds

That SkyBridge will invest less in hedge funds going forward is a “misnomer” about the deal with FTX, according to Scaramucci. His firm has a third of assets in cryptocurrencies, which could go to half. “But I still want to have a very robust hedge fund practice,” he said, but added this would largely be “legacy” positions.

The firm still has more than $300m invested with Steve Cohen’s Point72, he pointed out, a years-long position which he would like to keep on for “many decades”.

But he is gloomy about the outlook for hedge fund performance, saying central bank policy since the financial crisis had stifled trading opportunities.

4. Technology will prevent a return to 1970s

The current market environment of high inflation, weak growth and supply-side shocks has frequently been likened to the 1970s, but Scaramucci does not see it that way. He does not think high inflation will persist, in part due to advances in technology that increase efficiency and put downward pressure on prices.

He provides the counter-intuitive view that deflationary pressure could come to bear if the Federal Reserve is too aggressive in raising rates. “I think we have to be very careful we don’t touch off a deflationary cycle.”

5. Scaramucci unphased by ninth bear market

Scaramucci remains positive despite this year’s crypto losses and uses his experience in the White House — he was fired by President Trump after just 10 days as communications director in July 2017 — as a way of maintaining perspective.

“When you are an entrepreneur you have to realise that a lot is going to go wrong. I’ve been smacked in the face for 30 years.”

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