Haruko: Empowering the Crypto Investment Manager
Haruko was founded with a vision to build robust institutional-grade infrastructure and products in the blockchain ecosystem.
Risk is inseparable from return. However, if you can measure it, you can manage it. A deep understanding of risk and a real-time view of its sources helps institutional investors to make better decisions about their portfolios and trading strategies.
As traditional investors enter the digital assets ecosystem, having a robust risk management system in place is vital for successfully generating alpha. We know that inadequate risk management can result in severe consequences regardless of the sector you are in. Whilst risk management in traditional finance (TradFi) is well understood with sophisticated tools widely available, the same cannot be said for the digital assets market. It is worth noting that crypto exchanges, custodians, brokers and investment firms are exposed to exactly the same set of risks as those in TradFi. The unwanted outcomes are only magnified by the inherent volatility of the crypto market.
It is also important to bear in mind that ‘crypto’ does not automatically mean ‘decentralisation’. Centralised finance (CeFi) in crypto is mostly concepts brought over from TradFi along with all the market, regulatory, operational and credit risks accompanying them. Adding to this are the perils from the inadequate separation between market functions, lack of regulation and the absence of institutional-grade technology.
Decentralised finance (DeFi), on the other hand, bears no resemblance to TradFi. The concepts of mining, staking, yield farming and automated market making, amongst others, have no equivalents in the ‘old world’ of finance. The trustless nature of DeFi and replacement of human actors with uncompromising smart contract code bring a different set of risks, which need a different set of tools, to be managed successfully.
Institutional investors in crypto need two risk management problems solved. Firstly, to quantify and understand the DeFi risks and, secondly, to combine these with the CeFi risks in a single framework that they already understand. This is where team Haruko comes in. As active participants in this ecosystem, Haruko saw the need for reliable technology to be available for the institutional adoption of digital assets.
Haruko, meaning “spring born” in Japanese, was founded with a vision to build robust institutional-grade infrastructure and products in the blockchain ecosystem. Their team made an active decision to build from the bottom up, creating a suite of components that can be used to construct diverse products in the ecosystem. Their long-term commitment to this fledgling technology demanded nothing less.
Built in response to the lack of robust portfolio and risk management systems for crypto, Haruko’s flagship product is a Portfolio and Risk Management System. This started on the CeFi side with exchange connectivity, perpetual reconciliation of trades and positions, bottom-up calculation and categorisation of PnL. They then started adding functionality to track transfers through the system, building custom-defined volatility surfaces and future curves, modelling economic events, booking and pricing of over-the-counter derivatives and loans, performing customisable scenario analysis and designing extremely configurable risk views. Whilst these are all conceptually well understood, they are difficult engineering problems to solve given the available technology.
With all aspects of CeFi integrated, the team started leveraging the platform to build out the DeFi side of the portfolio and risk management system, streaming price feeds from decentralised exchanges, interpreting complex DeFi deployments including decentralised futures and options, processing raw blockchain transactions to feed PnL and reconciliation engines, as well as modelling protocol deployments to run risk scenarios.
As past practitioners, Haruko understand the ‘build versus buy’ dilemma of an investment manager. They think the investment technology stack broadly consists of three buckets – ‘custody’, ‘execution’ and ‘everything else’. This third bucket prominently contains risk management, but it also includes pre-trade analytics, booking systems, trade reconciliation, notification mechanism, trading costs and market impact measurement. These are some of the most engineering-intensive parts of the stack. Investment managers who are focused on return generation find it emancipating not to have to build these inhouse. They can focus on creating high-quality alpha signals and their best execution. This is precisely Haruko’s area of focus.
Another big headache for large organisations is to integrate with existing technology stack. Haruko addressed this by building its portfolio and risk management system as an API-first product. Every single interaction with the system can be completed over the API. In fact, their own dashboard is built on top of this same API. This means that the product can be used entirely programmatically and seamlessly integrated with legacy systems.
Serving some of the largest asset managers in this space, Haruko’s portfolio and risk management system is emerging as the most comprehensive product in class. However, with the infrastructure that the team has built over the years, this is just the beginning. A comprehensive on-chain data product and an institutional security and execution framework for DeFi are soon to be released tocomplete the investment technology stack for digital assets.