Interview with University of Liechtenstein

As part of Demelza Hays’ blockchain course at the University of Liechtenstein, Hansjoerg Hettich (Executive Director, MAMA) and John Orthwein (Risk Engineer, Melon Asset Management Protocol) recently gave a lecture about on-chain asset management and introduced the concept of TROF (technology regulated and operated finance). The outcome was Liechtenstein’s (and quite possibly the world’s) first ever student on-chain fund management competition!

Q- Hansjoerg Hettich: Tell us a bit about the format of the competition at University of Liechtenstein and how you got involved?

When I met Demelza, we spoke a lot about the potential of blockchain for the asset management space and how the mindset towards blockchain will change over time. Very quickly after that, the idea was born to collaborate at University level and teach asset management basics with an angle towards future technological changes in the industry and a focus on decentralised finance (DeFi). As part of the lecture, students set up their own on-chain funds and learned portfolio management skills hands-on with cutting edge technology. MAMA sponsored the fund setup costs (c $10-20 each) and “invested” 0.5ETH (back then, approx $70) into each of the portfolios — always keeping full control, custody and transparency over it. During the course of three months, students managed the assets, with a goal to outperforming ETH with guidance along the way from MAMA about traditional fee structures of investment funds, risk and compliance guidelines and crypto news like the recent Binance hack. A true fun(d) experience which we would love to continue with students in Liechtenstein and beyond.

Q- Hansjoerg Hettich: You left a very successful job in finance (Man Group and LGT) to co-found MAMA and drive the vision and mission there. What did you see in MAMA that got you so excited?

In my previous role as investment structurer in the hedge fund space, I operated in the middle of the fund ecosystem and interacted with portfolio managers, prime brokers, regulators, and service providers like administrators, valuation agents, custodians and auditors. With blockchain technology I have realised that the role of an investment structurer will change a lot in the future. With MAMA I am truly excited to pioneer this path for the asset management industry and connect the dots for the job profile of the future: “On-chain investment structurer” of “Technology Regulated and Operated Funds” (TROFs).

Q- Demelza Hays: I think we can safely say that your course is the first theoretical and practical course to tackle TROFs and decentralised finance in such a practical way. What made you think to integrating this into your course and what was the context?

The University of Liechtenstein is constantly innovating in the blockchain space. My doctoral supervisor, Professor Dr. Michael Hanke, asked me to create a course on Bitcoin and Blockchain technology in 2016. The first full course on the topic at a university in the DACH region, was my course, “Bitcoin: The Future of Money”, which started in the summer semester in 2017. Last year, the University of Liechtenstein began a first of its kind Blockchain Executive Certificate Program in partnership with Bank Frick. This year, although we have not officially announced this yet, the University of Liechtenstein will be entering into a 2.5 year contract with the Swiss Government Agency for Innovation, Innosuisse, and Incrementum AG to conduct proprietary research on crypto asset management. I am also a fund manager at Incrementum, and we are in the process of launching a crypto fund. One day maybe even tokenizing our fund or using decentralized finance technologies like Melon!

Q- Demelza Hays: How did the students react to the concepts behind decentralised finance (DeFi)?

Thank you so much to MAMA for “investing” in our students. Most university courses only teach theory, however, this MAMA competition allowed the students to really have a hands on learning experience, which in my opinion, is the most memorable kind.

Highlights of the competition?

The best part of the competition was when we looked at each fund’s performance at the beginning of each class. The students with the best returns could feel proud of their investment decisions that were based on the blockchain theory that we learned in class.

Lowlights?

MAMA was so generous to allow the students to charge a 2% management fee and a 20% performance fee with no hurdle for managing MAMA’s Ether investment. As a fund manager who charges 1% and 10% over a 10% hurdle, even I was jealous! I think the students would have liked to have more liquidity on Melon so that they could have really earned big bucks from their successful trades!

Q- Demelza Hays: The technologies are still young and user-unfriendly, was this an issue with the students?

Yes, the students said that the low liquidity meant that their orders were sometimes not filled. They also said that they had to pay fees in Ether even when their order was not successfully filled. So their portfolio return was negatively impacted because of Ethereum transaction fees even when the buy or sell order was not executed.

Q- Hansjoerg Hettich: Most of your daily interactions with MAMA are with more professional asset managers. What were your observations hosting a workshop with university students for a change?

Honestly, it took me by surprise that most of the students were familiar with the blockchain basics and easily operated with wallets, ETH and crypto jargon — something I have not yet seen with most asset managers I speak to. Also I have had interesting chats with students about their future career: one was pondering whether to start with an established investment bank or to join a small blockchain finance project. The choices are there and I have the feeling more and more will choose the latter.

Q- John Orthwein: You guided the students through the technical set-up of their funds on the Melon Protocol. How was this experience for you?

The actual set-up was not so difficult — far easier and quicker than the set-up of a traditional fund vehicle. The trick is getting to the understanding that this is all happening “on chain” — that there is no external counterparty involved! This is peer-to-peer asset management, and that’s a game-changer.

Asset management, and finance in general, has been quite static over the past few decades, innovating mostly at the periphery and by optimizing current processes. But there has been no innovation at the core of how all this works, no change in the fundamental processes or how we think about funds. These new, open tools will let us see things in a different light and enable solutions that we could not see before. This is what is now at the heart the DeFi movement. And it is breathtaking to see it happen before your eyes!

Everything around us is becoming more technical and more digital. Finance will be no exception. The investment manager of the future will necessarily be more technical and we see this as a chance to get these tools into the hands of people now who will be the portfolio managers, risk managers, analysts and controllers in the very near future.

I think this is where real benefits can be achieved — making finance more accessible in terms of cost and who can participate. Ultimately, it is about putting capital to higher and better uses. That has not changed, but this technology now makes it much more individually granular and feasible, even on a small scale.