People have approached me about making this a reality, and I wanted to get opinions on the idea. Actually one of my Illustrator offers was from a guy in NY who wanted to add it to a hedge fund. This isn’t something I am actively pursing but thought it was an interesting topic.
Essentially the most valuable collections in this hobby are not only unattainable and irreplacable, they aren’t doing anything in the market. Therefore if they were part of a hedge fund, which occurs with art and vintage sports, they are creating some market activity.
An easy way to understand is with the recent Black Lotus that sold for 166k. The previous example sold for 88k. If a copy was part of a fund, after the auction, the value of the fund would increase, so would the share price. Thus creating activity and opportunity for those interested.
Anyway, I just wanted to post this as a discussion topic, as I think at minimum it highlights the impossibility of owning some of the collections or items in every hobby. There are plenty of cards that are impossible for 99% of people to own, and this is a way to engage with their market activity.
Its a very interesting idea, but there are some things that might be difficult. They usually have high minimum investments in order to only allow accredited investors to partake. They usually serve a small number of very large investors. I feel like this sort of an idea would be enticing to the lower level investors who are trying to get a hand in the top tier cards. Since hedge funds are usually geared to people with more capital, wouldn’t this be serving the wrong market?
I think starting a pokemon hedge fund now would be smart as some cards will most likely be worth as much or more in than the recent Black Lotus sale in the future.
I think that the idea would be cool, but I don’t think a PKMN specific HF would work because it would be so hard to get the necessary AUM for it to be a profitable endeavor. Plus I think that it would be extremely hard to convince institutional investors (like pension funds, or other large company investment funds) to let you manage their money since most of them won’t know PKMN and who only know that collectibles markets are very risky.
I made a mock Pokemon hedge fund for my parents lol. They invested $15k and in return I guaranteed profit after 5 years. This was a few years back. If in 2022 it’s worth less than 15k I had pledged to give them the cash back + rate of interest in exchange for the cards. However it is already worth considerably more than $15k and out of parental love I am not taking a cut of the profits. But since then a few friends have asked me to invest for them and I have declined since it is stressful to be dealing with other people’s money and takes some fun out of the hobby.
I’m pretty sure there are many more legal implications of such a thing than you probably realize which would eventually end up with you and any other principal parties in talks with the SEC and IRS when any one of your investors feels slighted and/or takes an issue to court. I definitely wouldn’t take any steps in this direction until you’ve spent a couple tens of thousands of dollars with the appropriate security and tax lawyers that can give you more information about the legality of such an operation. And I especially wouldn’t post any hypothetical videos on youtube of you or some other person accepting an $81,000 cash payment for sale of a security where there’s likely 0 tax reporting going on wrt to capital gains and/or share transactions, lol.
@cman You can get some of the business school students at your uni to help with this right? The battle of b schools is always between your school and the big H, and all the H guys I know are pretty bad people. So please start recruiting for Goldduck Sachs, Morgan Starmie, or Marill Lynch(sorry, I mean BofA Securitys ) Asset Management Services.
(honestly just wanted to make up some puns with PKMN and investment banks)
It is a super cool concept and I would gladly partake to some degree if it were pursued wholly and properly.
I think a lot of people struggle to understand how the cards at the highest level move without publicized sales. I also think something like this would serve as a really cool metric for visualizing what the Pokemon market is doing.
Scott if you do a typical 2/20 hedge setup I’d invest and I’m sure others would if you are willing to handle the stress and pressure. However as hypernova mentioned there are capgain taxes to be taken into account.
I’m not an expert in the subject matter of hedge funds, but two main logistical questions come to mind if I were to consider investing in it.
How liquid would the asset be? Let’s say I’ve invested $10k in the fund and kept it there for a few years. For the sake of illustrating a point let’s say it’s now worth $20k and I want to withdraw $10k. How would this be accomplished? As we know, needing to sell a card quickly does not give top dollar returns. Would you keep a fixed cash position for people who want to withdraw funds?
How often would the buying or selling of the actual cards occur? Would you just never sell the cards which are in this fund? And if so, then that goes back to the previous question of how one would expect to be able to get their money out of the fund. Maybe it would make more sense to have it act like a bond which matures at the end of a certain period of time after which the card(s) will be up for sale.
EDIT: To build on the idea of it being more like a bond, the cards wouldn’t necessarily have to be sold if there are enough new and old investors willing to purchase all of the shares for the next period.
Haha I’ve done a similar thing, when I’ve seen a bulletproof investment but haven’t had the free cash to jump on it, I’ve used my mothers money and given her the majority of the profites
If this idea took off and became successful, I’d imagine that the prices of high-end sought after cards would increase. I’m sure we all understand supply and demand. A Pikachu illustrator is expensive due to low supply and high demand. If the demand is further increased by increasing the buyer pool, then theoretically the price should go up. I’m not sure that holds entirely true for assets that are as rare as the illustrator. Regardless of the nuances though, it’s still an interesting thought
When I think about it, I start to see a cycle emerging: the act of further legitimizing Pokemon cards as an investment would cause more people to enter the hobby in some capacity. This in turn would mean higher demand and increasing prices, which legitimizes it as an investment even more. At a high level, you would start seeing a second buyer pool of people who don’t really care to own the cards or even like them, but see the potential for it as an investment vehicle. However, the ceiling for would probably still remain relative to the buying power for the people who truly enjoy and collect the cards… or would it?
If you’re talking about a hedge fund with Illustrators, Alpha Black Lotuses and other very rare items, then the sparsity of sales would cause major problems for those who want to withdrawal money at a certain point in time. Your Back Lotus fund would be sitting at $88k for a year and then jump right to $166k.
I personally wouldn’t want to be part-owner shared with 100 other people, I’d rather own the best items I can with my budget. Owning an actual piece of history and art is what makes collectibles enojyable and being part of a hedge fund would take the fun out of it for me.
Would you personally invest in a hedge fund with cards that you can only afford to buy a fraction of?
Sounds nice on paper but probably not practical. Gary’s methodology of part ownership with some people would work better, ironed out legally
A decent hedge fund pays it’s analysts about 150k usd pa fresh out of university which goes up to 1mm for a performing associate with 7 years experience, and millions for a portfolio manager
How many must you sell to cover the overheads? An illustrator is not even a weeks salary for the pm
There’s a reason why art hedge funds are not yet a big thing despite going for hundreds of millions; it just doesn’t compare to the trillion dollar equity and debt markets. Art today is mostly rich people buying stuff for their personal collections and museums, and the same will apply for pokemon if it becomes successful.
there are legal considerations when buying and selling. Hedge funds are in the stock market which has objective prices for all to see or in private deals are heavily negotiated with an army of lawyers. How do you protect yourself from investors that malign that you didn’t do due diligence when paying?
I think Pokemon is as viable an investment option as any other but it may bring an added layer of toxicity to the hobby if it gets run over by financiers and even have a negative impact on legitimate collectors.
Adding an illustrator to an edge fund in itself is no big deal, the investor mindset permeating the hobby is what worries me for a few reasons.
Pokemon (unlike the financial markets) is unregulated, meaning people can get scammed and prices can get manipulated extremely easy, so if this becomes a reality we could easily see 1st edition shadowless base set becoming unaffordable to the average middle class collector.
As much as we would like for such money to stick to high end items, we know from MTG that dumb money does trickle down and all of a sudden investors may start buying out items for the sake of financial speculation, pricing out legitimate collectors. Investment brings wealth but it also brings bubbles.
I am aware that there are already some investors at the top end of the spectrum, but I would prefer for that mindset to remain contained to a few undisclosed OTC transactions per year so that the general market can continue on a healthy growth path. At the moment prices go up and down organically and that is a good thing in my opinion.
Even though I do recognize that there already is an investment aspect to collecting, it is mostly based on research, and there is a huge difference between financial optimization through careful research and furthering your interest in the hobby and plain speculation for the sole purpose of financial gain.
Glad people liked this idea! To reiterate, this was simply a hypothetical concept for discussion.
Another added benefit would be market visibility. Majority of the highest end items move privately. Only those involved are privy to the activity. Perhaps a potential middle ground might be some type of membership database. This exists in sports, or at least did years ago when I was more active.
The truth remains that the most valuable items have become unattainable. Even the biggest whales with millions to spend cannot locate certain cards. Some cards haven’t appeared for years. Therefore the most valuable collections are irreplaceable and are greater than the sum of their parts. Due to their unprecedented stature, they most likely will never sell whole.
Anyway, a literal hedge fund is grandiose. I was just kicking around a way to create activity from collections that won’t ever hit the market in their entirety.
It seems an interesting idea. But, for someone who is new to this concept, could someone recommend me a page where I can read about it or explain it briefly?
If this hedge fund come true, there is an specific card in it and I invest in the hedge fund, would that mean that I would be the “owner” of the 0.000000000000000000000000000000000001% of that card?
The battle of b schools is always between your school and the big H, and all the H guys I know are pretty bad people. So please start recruiting for Goldduck Sachs, Morgan Starmie, or Marill Lynch(sorry, I mean BofA Securitys 
) Asset Management Services.
