We tend to think of stocks, bonds (and the ETFs and mutual funds they’re sold in) as investment-grade assets suitable for long-term investing. There are, however, other places to park capital. One category is physical assets, like real estate and precious metals. Another category, which hasn’t yet caught the interest of institutional investors is intangible assets, like intellectual property and—as we’ve seen in the past year or so—NFTs.
For much of the world, investing in cryptocurrencies remains risky or difficult, but crypto investors and users increase each day irrespective of fluctuations in price or the total market cap. Within that group of investors lies a smaller subset whose lives have become consumed by NFTs, many of whom have left the “normie” world to develop a new economy centered around art and utility tokens.
At the intersection of both groups of people—traditional investors and NFT economy participants—lies the tiniest subset of individuals who are actively investing in NFTs through traditional investment vehicles. One of the most recent and significant of these is Starry Night Capital, a new fund launched by Singapore-based hedge fund Three Arrows Capital. The new fund is tasked with “assembling the world’s finest collection of NFTs” and its co-founders, Su Zhu and Kyle Davies, have signed on notable NFT collector @Vince_Van_Dough to assist with, among other things, curating the fund’s portfolio of assets.
Excited to be working together with @zhusu and @kyled116 from 3AC to launch @StarryNight_Cap, a NFT fund.— VincentVanDough (@Vince_Van_Dough) August 30, 2021
Our thesis is simple, we believe the best way to gain exposure to the cultural paradigm shift being ushered in by NFTs is owning the top pieces from the most desired sets.
Visiting the homepage of the website reveals that this isn’t your typical fund, with a blank page that’s host only to a Seerlight piece, Crystal Shower, likely the source of inspiration for the fund’s name. The piece was acquired three months ago by the fund for 12.5Ξ ($23,791 USD at the time of purchase), before the artist’s work skyrocketed in value.
The fund’s most notable purchase to date is an Art Blocks Curated piece from Dmitri Cherniak’s Ringers collection, which was acquired in late August for 1800Ξ ($5.66 million USD at the time of purchase). Starry Night has since spent the equivalent of $12 million USD on SuperRare 1/1s alone, including two more Dmitri Cherniak pieces that are part of a four-piece set entitled “A Slight Lack of Symmetry Can Cause So Much Pain” for a total of 1300Ξ (over $4 million USD at the time of purchase).
Those purchases are in addition to the 2000Ξ+ collection currently viewable on OpenSea, which includes a Pepe the Frog NFT Genesis, a Fidenza and 1/1s by NessGraphics and Mad Dog Jones.
Starry Night is one of the best capitalized institutional investors operating in the NFT market in the form of a traditional fund. However, other notable funds have entered the market with similar objectives, including:
Metapurse, which claims to own the largest known collection of NFTs (including Beeple’s Everydays: The First 5000 Days, which sold for $69.3 million USD at Christie’s earlier this year)
META4 Capital, a crypto-currency investment management firm backed by VC firm Andreessen Horowitz
Separate from the world of traditional finance, a number of DAOs have emerged over the course of the last year composed of groups of individuals who are collectively accumulating important NFTs. Some of these DAOs, such as Fingerprints DAO, FlamingoDAO, Jenny DAO and PleasrDAO, have raised capital that dwarfs the portfolios of institutional investors, in part due to the fact that they were (i) initially open to relatively large numbers of accredited investors, each of whom contributed a significant seed capital, and (ii) acquiring significant pieces prior to the parabolic rise in NFT prices earlier this year. Because of that advantage, it may be difficult for new entrants to compete over certain projects, such as Autoglyphs, many of which are now held in vaults controlled by distributed governance systems.
Nevertheless, Starry Night is attempting to methodically acquire pieces from various historic or otherwise important projects. Such programmatic diversification is a behavior that most funds employ to some degree. Diversifying assets helps reduce the risk of gaining too much exposure to one type of asset, but also helps round out a portfolio by gaining broader exposure to the entire class.
@Vince_Van_Dough has already stated that the fund has plans to launch an NFT education portal, explore ways to bring more exposure to up and coming artists, launch a physical gallery in a major city, and ensure works in the collection remain open to the public. The fund is also looking to raise $100 million USD from other investors to continue acquiring pieces while providing optimal returns.
As the NFT market continues to mature and prices rise, the space will see new inflows of capital and participants that will change the NFT landscape. Starry Night Capital may be the most notable fund operating in the space, but it won’t be the last. With that in mind, many have noted how important it is for enthusiasts to build up their collections with early, genesis and day-one projects before it’s too late.