Recent Polly Pocket Investor Day.
Polly Pocket is the managing partner of Polly Pocket Capital. The fund invests solely in tokens.
Schmuck is an investor in the fund.
Polly – Welcome everyone to our Investor Day. 2018 has been a challenging year for our fund but we are fully confident in our ability, over the long run, to deliver superior returns.
Schmuck – Speaking of performance, can I get some more colour on what your fund actually holds?
Polly – Great question. As you know, we don’t disclose exactly what we own, but I can give you a taste. Our fund is divided into listed and unlisted tokens.
Schmuck – Ok, what do you mean by listed and unlisted? I thought the mandate only allowed the fund to invest in tokens that are already traded on a secondary market.
Polly – Well, that is true. But we saw some great deals, so we created a side pocket. The side pocket contains all the pre-ICO deals that we invested in.
Schmuck – Hmm…So you basically can invest in whatever you like, regardless of the fund mandate?
Polly – In a nutshell, yes.
Schmuck – Greeeeaaat. How do you mark these illiquid, unlisted tokens?
Polly – As you know, due to our amazing connections, we get in on deals well before the unwashed masses. Typically we get a 70% – 90% discount to the last round where most of the plebes purchase these tokens. We then mark the value of the token to the last round price.
Schmuck – So if you invest a price of $1,and the last round which could be a very small amount of the total float, is sold at $10, you record a 10x gain?
Polly – Yes.
Schmuck – Does that also mean that I get charged management fees on the 10x value?
Polly – Yes.
Schmuck – Your liquid token portfolio got molly whopped this year, correct?
Polly – Yes.
Schmuck – So the AUM will get bled at an accelerated rate due to the marking of the side pocket? I’m am paying 2% on a 10x marked up illiquid token with no secondary market, and there is no visibility as to when it will actually list?
Polly – I mean that sounds worse than it is, but you are essentially correct.
Schmuck – Do you apply a haircut to this valuation because there is no liquidity, and an indefinite time to listing?
Polly – No. We believe there is extreme value, and this is reflected in the last round price. Our team of token experts really knows how to value these things.
Schmuck – Maybe, but the management fees paid on these side pocket investments could consume the entire value of the investors’ capital. What happens if I would like to redeem?
Polly – We would sell our liquid tokens first. Once that pool of capital is exhausted, we would be unable to meet your redemption request.
Schmuck – Is there no way to sell your interest in these projects? Have you ever tried?
Polly – Legally we can’t. The SAFT term sheet does not allow us to transfer our interest before the token lists.
Schmuck – So basically you are telling me, I’m up shit creek without a paddle?
Polly – I wouldn’t put it that way. Sometimes we suffer liquidity issues.
