What’s Working with Allocators: Insights from Unsquared

Executive Summary

What's Working with Allocators is a Crypto Insights Group series focused on understanding how digital asset managers are engaging with allocators in today's market environment and what is resonating most in fundraising and diligence conversations. The series captures practical observations from managers across different stages of growth, highlighting how allocator expectations are evolving and how managers are adapting their communication, transparency, operational frameworks, and investment positioning in response.

In this edition, we spoke with Unsquared, an emerging digital asset manager running a systematic market-neutral, multi-factor portfolio in crypto perpetual futures. The firm currently works with family offices, high-net-worth investors, and crypto-native allocators, and has been actively onboarding new allocator relationships at a meaningful cadence despite operating at an earlier stage. Unsquared offers a useful perspective into what is resonating with allocators evaluating smaller and emerging managers today.

Can you tell us about Unsquared and the types of investors you work with today?

Unsquared is a systematic crypto hedge fund running a market-neutral, multi-factor portfolio in crypto perpetual futures. We apply traditional finance factor research methodology to digital assets, building cross-sectional alpha factors from data sources the broader crypto market is not pricing efficiently. These include derivative positioning, order-book liquidity dynamics, and proprietary behavioural signals. The portfolio trades a universe of the top 100 most liquid tokens, rebalances daily, and targets consistent risk-adjusted returns with near-zero beta to BTC and the broader market.

The strategy is delivered exclusively through separately managed accounts. Clients custody assets on their own exchange account and we connect via API with trade-only permissions and no withdrawal access. 

Our investor base today consists of family offices, high-net-worth individuals, and crypto-native allocators, with a growing pipeline of emerging institutional interest from allocators evaluating systematic crypto exposure for the first time. A large amount of the strategy capital is also GP capital, which reflects the team's conviction and is consistently raised by allocators as a meaningful alignment signal.

The team brings backgrounds across traditional finance, quantitative research, and deep tech, including experiences from JP Morgan, applied mathematics from Cambridge, and serial founder experience across data infrastructure and execution systems.

You've mentioned onboarding approximately one new allocator relationship per week. What do you think is resonating most in allocator conversations today?

A few themes come up consistently.

First, the SMA structure with self-custody. Allocators have not stopped thinking about counterparty risk, and a structure where assets never leave their custody and where they can verify every position and trade in real time addresses that concern directly. It also removes friction around subscription documents, capital calls, and redemption windows, which shortens the path from initial conversation to live capital.

Second, market neutrality. Many allocators looking at digital assets already hold beta through ETFs or directional crypto allocations. A market-neutral portfolio offers a return stream that is orthogonal to what is already in their book, and appetite for that orthogonal exposure has been increasing.

Finally, the factor approach. Many crypto quant strategies focus on a narrow set of well-known opportunities such as funding rate arbitrage or cross-exchange spreads. Allocators have seen these many times and understand how their capacity and edge tend to compress. Presenting a multi-factor portfolio built on alternative data, with a clear economic rationale behind each factor, opens a different category of conversation about how the alpha is being generated and why it should persist.

What types of allocators have been most active in conversations recently?

The most active conversations have been with fund of funds and crypto-native investors. Many fund of funds find the strategy uncorrelated to the rest of their book. Their existing crypto exposure is typically a mix of directional, funding rate, and DeFi yield strategies, and a market-neutral factor portfolio sits cleanly outside those existing return drivers. They are also well-equipped to underwrite the SMA structure, since their teams already evaluate derivatives venues, leverage, and operational controls as part of their normal process.

Crypto-native investors are typically further along the learning curve on systematic strategies and are eager to experiment with factors. They also tend to move from first conversation to deployed capital faster than other allocator categories once they have validated the structure.

What are allocators spending the most time evaluating during diligence conversations today?

Diligence has shifted noticeably toward operational and structural questions. Allocators want to understand exactly how the strategy interacts with their assets, how the team operates day to day, and what happens when something goes wrong.

The specific areas where we spend the most time:

• Risk management framework. How factor diversification is constructed, how single-asset and single-factor exposure is capped, how volatility scaling works, and what circuit breakers exist when live performance diverges from expectations.

• Operational resilience. System uptime, redundancy, monitoring, alerting, and the documented protocol for API outages or execution failures.

• Live versus backtest discipline. Allocators are increasingly skeptical of backtest-heavy presentations and want clear separation between simulated and live performance, with live track record taking priority.

• Team and alignment. How long the team has been working together, the level of GP capital, and what each team member specifically owns within the operation.

What has worked well for you in building allocator trust as an emerging manager?

A few practices have worked well for us.

We separate live from backtest performance in every piece of material, and we lead with live wherever it exists. The temptation as an emerging manager is to lean on backtest results to round out the track record discussion, but in general live performance underperforms backtest by a factor of 50% on average, so most allocators take backtest with a grain of salt.

We offer to provide direct access to portfolio managers from the first meeting. Allocators evaluating emerging managers spend considerable time evaluating the people running the strategy, and putting senior team members in conversations early shortens the diligence timeline.

We respond to diligence questions in detail and in writing rather than handling them verbally. Allocators are usually running parallel processes on multiple managers and need referenceable answers they can share internally with investment committees or risk teams. We’re very open and happy to fill out any DD questionnaires that come our way, irrespective of how long it takes. 

We are also honest about what we are not. We are not a fund. We do not run a complex multi-strategy program. We are not a strategy that will return steady returns with zero drawdown. Being very clear on what we are and what we are not right out the gate lets allocators self-select faster and demonstrates respect for their time.

What have you learned about allocator psychology throughout the fundraising process?

A few things stand out.

Conviction is rarely built in a single meeting. Allocators need multiple touchpoints to evaluate consistency, and typically like to monitor for a few months before considering deploying. 

The single biggest accelerant of conviction is verifiability. Anything an allocator can independently check against an external source (including a reference LP) materially shortens the trust-building process. The SMA structure helps here because every claim about positions, exposure, or performance can be verified against the exchange in real time.

What turns investors off immediately is inconsistency. If risk controls look strong but operational documentation is thin, or if returns look good but the team narrative is unclear, allocators tend to pause. Because there are so many funds out there, an allocator wouldn’t want to take the risk of deploying into something that doesn’t sound, look, smell 100% cohesive. Emerging managers benefit most from making sure all of their docs are consistent on day 1 and no single dimension is underdeveloped.

Have allocator expectations changed meaningfully over the last 12 months?

Three shifts stand out.

Counterparty and custody scrutiny has remained elevated. The events of the last cycle continue to shape allocator preferences, and structures that minimise counterparty exposure are easier to underwrite than ones that require allocators to take comfort on a particular fund administrator, prime broker, or custodian.

Risk-adjusted returns are being valued more than raw returns. Allocators seem more interested in Sharpe, drawdown profile, and beta to crypto than in headline performance, particularly for strategies pitched as portfolio diversifiers. If returns are too high, allocators become skeptical of the type of risk that you’re taking on. 

The line between crypto-native and institutional diligence has blurred. Most serious allocators now run a similar diligence playbook regardless of background, with formal DDQs, reference checks, and structured follow-ups. The implication for emerging managers is that documentation quality and operational discipline are now baseline requirements.

What advice would you give other emerging digital asset managers currently raising capital?

A few things we would like to share.

1. Build for transparency before you have to. Allocators will eventually ask for daily data, position-level visibility, and performance attribution. Setting these up early is much easier than retrofitting them.

2. Be precise about what you are and what you are not. Allocators have limited time, and the manager who can characterise their strategy in a sentence, then back it up with consistent materials, build credibility much faster.

3. Treat diligence as a long-term relationship process rather than a sales cycle. The allocators who pass on a first allocation often come back three months later if the engagement was professional and the strategy held up. 

4. Invest your own capital alongside LPs. GP capital is the clearest signal of alignment and conviction available to an emerging manager, and it tends to be one of the first things allocators ask about.

How does working with Crypto Insights Group support your allocator engagement and due diligence process?

Crypto Insights Group helps support allocator engagement by providing a more standardized and transparent framework for presenting strategy, operational, and risk information. The platform also supports ongoing allocator communication through monthly updates, benchmarking context, and centralized diligence materials.

For emerging managers in particular, creating consistency across investment messaging, operational documentation, and ongoing reporting can help streamline underwriting conversations and improve the overall allocator experience.