Hedge fund Translunar One partners with Sterling Global to offer digital asset custody, attract LPs

Banks and trust companies are launching custody services for digital assets to attract institutional investors who are reluctant to invest in cryptocurrencies and tokens without more robust ways to safeguard their assets.

The latest trust company to announce its custody service for digital assets is Cayman Islands-based Sterling Global Financial, which on May 30 announced a partnership with Austin-based cryptocurrency hedge fund and investment company Translunar One to provide third-party custody of crypto assets.

Custody solutions are seen as a critical element to building out a blockchain-based financial infrastructure. Since blockchain transactions are immutable, there is no recourse to recover lost assets if the private key to an individual digital wallet is stolen and the funds are transferred illegitimately.

Among venture investors and fund managers who hold digital assets, some have told VCJ that they keep custody of their secret keys themselves, sometimes storing the codes in hard wallets in their desk drawers.

That level of risk is among the reasons why institutional investors like pension, endowments and foundations have largely refrained from entering the crypto sector.

Sterling Global Financial’s digital asset custody solution aims to replace makeshift custody solutions with a service that adheres to the same level of compliance for equities and securities custody. The bank has offered custody to clients since about September 2017, according to Brandon Caruana, the company’s chief technology officer. The partnership with Translunar One is the first to be announced.

The bank is also looking into insurance for clients, which is legally required in some cases. Caruana said he hopes to be able to announce a solution in six months.

In the past year, multiple banks and companies have begun to offer custody for digital assets. In November, digital currency platform Coinbase announced that it would begin to offer custody to institutional investors. In May, blockchain security company BitGo announced it would build its own custody platform for digital assets, after a deal with asset custodian Kingdom Trust fell through. State Street, one of the world’s largest custody banks, is considering offering its services for digital assets.

For Translunar One, the announcement is strategic as the fund courts investors.

“Institutional money is still on the sidelines,” said founder and fund manager Justin Schmidt. “If they’re dipping their toes, it’s very lightly.” The fund is talking to “some of the largest pension funds in the U.S. and Texas,” he said, but does not currently have any pensions as limited partners.