Here is an ancient idea which has failed a few times. I think could work now given the speculation solipsism we exist in:
BlackRock 2.0 is a capital router powered by software. Spin up and manage hedgefunds like they’re an AWS instance. Here’s how it works:
- Traders submit their history to this platform by connecting their Interactive Brokers, Robinhood, etc. accounts.
- Each trader pre-bids how much carried interest they’d charge.
- We now find the best traders by backtesting their prior trades. Since the data is coming directly from the broker, we can assume it has not been manipulated.
- We do the math on the most profitable trader to allocate to (including interest charge) and slowly inject capital to them.
- We do not make the trader aware of this, as to not distort them or cause a change in their strategy.
- At some point, returns should compress; alpha will be lost. You would now automatically reduce the amount of capital deployed, until a sweet spot is met again.
- Profits and carried interest are calculated automatically and rewarded to the trader at the each of each day.
For this to work, you have to believe that when alpha is met, it’s met with insufficient capital. I think that’s true at least some of the time. This strategy could work both in crypto and public markets.
Finally, if you really wanted to go wild, you’d build the other side of the marketplace: anyone can be a LP. With any amount of money. Now… things get really interesting.
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[1] Of note, there are some regulatory headwinds here that could be conquered by selecting a different market (crypto) or geography.