The Democratization of Wealth Management: Hedged Mutual Fund Blockchain Protocol

Ravi Kashyap

Research in International Business and Finance, 2024, vol. 71, issue C

Abstract: We develop several innovations to bring the best practices of traditional investment funds to the blockchain landscape. Specifically, we illustrate how: (1) fund prices can be updated regularly like mutual funds; (2) performance fees can be charged like hedge funds; (3) mutually hedged blockchain investment funds can operate with investor protection schemes, such as high water marks; and (4) measures to offset trading related slippage costs when redemptions happen. Using our concepts – and blockchain technology – traditional funds can calculate performance fees in a simplified manner and alleviate several operational issues. Blockchain can solve many problems for traditional finance, while tried and tested wealth management techniques can benefit decentralization, speeding its adoption. We provide detailed steps – including mathematical formulations and instructive pointers – to implement these ideas and discuss how our designs overcome several blockchain bottlenecks, making smart contracts smarter. We provide numerical illustrations of several scenarios related to our mechanisms.

Keywords: Performance fees; High water mark; Asset price; Blockchain; Smart contract; Investor protection; Investment fund (search for similar items in EconPapers)
JEL-codes: B23 C32 D8 D81 G11 I31 O3 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:71:y:2024:i:c:s0275531924002800

DOI: 10.1016/j.ribaf.2024.102487

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