The main ongoing goal of the Investment Hub is to:
- maximise the return obtained on the assets sitting in the capital pool,
- while minimising associated risk.
A description of the rationale for investing assets from the capital pool can be found in the stETH investment proposal.
Nexus Mutual is in the unique position where its treasury is fully transparent, on-chain, and legally belongs to all members of the mutual. Therefore, we believe the investment selection and approval process should be as transparent as possible, with ultimate decision making power in the hands of the members.
Managing a pool of assets in these circumstances, especially given the risks involved in our space, is not straightforward and there is little to draw on in terms of best practice. Therefore, we aim to learn as we go along, make recommendations with care and iterate on our approach regularly.
If we do this well, we believe we can truly set the standard for prudent treasury management within the DeFi space.
Activities of the Investment Hub
We intend for the members of the Investment Hub to perform the following activities on an ongoing basis. The list is not exhaustive and always subject to change as circumstances change.
The Investment Hub participants aim to define and iterate on the Investment Strategy of the mutual.
The intention is to put forward an opening strategy in the coming weeks and submit it for member governance approval. This strategy would then act as a binding guideline on the types of investments and/or external managers the capital pool can be allocated to.
The Investment Strategy would contain:
- A description of the investment objectives of Nexus Mutual and how they fit into the mutual’s overall financial health.
- A specification of the intended allocation between higher risk investments, lower risk investments and cash
- The types of investments that sit in each category
- Defining the target return and risk tolerance threshold for the categories and the mutual as a whole
Review of Performance
The Investment Hub would commit to providing a periodic review of the Investment Strategy, manager performance and its own set-up on an ongoing basis, currently proposed quarterly.
Some of the categories for review would be:
- Compliance with Investment Strategy and processes to rectify any non-compliance
- Overall risk exposure across the mutual’s assets and liabilities to specific protocols/assets
- Exposure to specific managers or strategies
- (If applicable) are external managers providing an adequate level of service and information
- Liquidity requirements and availability
- New strategies/products/providers we should explore
- The appropriateness of the structure and time commitments of the hub members
A more formal checklist/review process document shall be produced in the near future.
We expect to communicate analysis and work done in the context of the committee with the broader Nexus Mutual community for periodic review and feedback.
Drafting, Submitting and Reviewing Investment Proposals
The members of the Investment Hub will also look to identify investments or managers that fit with the strategy of the mutual across the risk spectrum, perform due diligence and put forward proposals for investments.
However, the Investment Hub participants would not be the only source of investment decisions and we hope that members continue to actively seek out appropriate investment assets for the capital pool. The Investment Hub can then provide feedback and commentary on any investment proposals put forward by members.
We hope to be seen as the first point of call when members have a well thought out proposal for an investment that fits in with the strategy and are looking for advice, challenge and input before submitting the idea to the wider membership base.
Activities Not in Scope
The investment hub members would not act as an asset managers on behalf of the mutual, therefore we would not engage in:
- picking individual high-risk investments, or
- micromanaging the day-to-day allocation of assets.
Objectives of the Investment Hub
Short Term - 3 months
- Create and ratify an overall Investment Strategy for the mutual
- Evaluate responses to High-risk RfP, provide opinions and work with the Nexus Mutual community, team and responders to implement optimal solution for high risk portion of portfolio
- Create a formalised set of guidelines for the investment committee itself:
- how it makes decisions,
- how it puts forward recommendations
- the balance between speaking “on behalf of the committee” and on behalf of themselves by individual members of the committee
- Create a performance evaluation framework, asset adjustment framework and take first set of decisions based on that framework
Medium Term - 6 months
- Reach 50% of (target non-cash) capital pool invested in productive assets
- Have a clear roadmap for getting to desired allocation
- Create and ratify a framework for evaluating and selecting ETH2 investing options
Long term - 1 year
- Have the assets in the mutual’s capital pool allocated as per Investment Strategy
Set-up of the Investment Hub
Since the hub will be responsible for overseeing that the investment objectives of the mutual are adequately met, it will ideally be composed of members with expertise related to Nexus Mutual’s operations as well as risk management, insurance, investing and crypto more broadly.
We propose starting the Investment Hub with a committee of 5 people. As the committee will take the lead on due diligence and recommendations related to prospective investments, frequent communication between members will be critical to an efficient process and we suspect it will work best if kept small, at least to begin with – hence a committee of 5. This should ensure that a critical mass of hub members can make investment proposals and engage with prospective managers in a timely manner to perform due diligence on behalf of the mutual.
The first 3 members are self-appointed and listed below along with their main area of expertise for contributing to the committee and a short bio:
- Reinis Melbardis (hub lead) – Nexus Mutual (long-term goals, team contacts and economics)
I began working on Nexus in May 2018 as the first full time employee, covering economic design, legal set-up, actuarial modelling, documentation and early business development. I’ve been a board member since February 2020.
I am a UK-qualified Actuary and alongside my involvement in Nexus have held a variety of back-office and front-office corporate roles in reinsurance and brokerage.
- Aleks Larsen – Blockchain investing and crypto industry knowledge
Aleks is a partner at Blockchain Capital LLC - a VC focused on crypto investments. Aleks brings a range of industry contacts and possesses a breadth of knowledge across various crypto protocols and businesses.
- Nico Santini – Insurance company asset investing strategies and processes.
Nico is the Chief Investment Officer of Prosight Specialty, a property & casualty insurer providing tailored insurance solutions for businesses. He provides oversight and strategic direction of their multi-billion dollar investment portfolio consisting of core, core plus, and alternative assets.
The hub lead has no additional decision making power, but is responsible for keeping track of the tasks and would act as the first point of contact for the Investment Hub.
For the remaining two spots in the committee, our intention is to approach those who express an interest in contributing and ask them to provide the following:
- A written analysis of current RFP responses and associated recommendations
- Written comments on the draft Investment Strategy - a framework and process for analyzing Nexus Mutual’s investment allocations, performance and overall financial health
- Written comments on the draft Periodic Review Checklist
- Confirmation of Ability to contribute regularly and meet bi-weekly (and sometimes more frequently as needed for performing diligence on new investments/managers)
Out of the interested community members, we expect to appoint 2 members to the Investment Hub whose contributions demonstrate a willingness to engage and a set of skills that are complementary to the existing hub members.
The three founding hub members are currently contributing part-time on top of their existing engagements with Nexus, hence we will most likely begin without requesting a budget from the community treasury and therefore also do not propose a fixed time commitment at this stage. However, as the size and complexity of Nexus Mutual’s investments increase, and we learn more about the required effort, needs and responsibilities of the hub over time, we may petition for a budget should it be deemed appropriate. The review of whether this is required will form part of the “Review of Performance” activity of the Hub.
Some members have already approached us to contribute, but If you are interested in helping out, please let me know either in the comments below or through a direct message.
Interaction with the Core Team
The Investment Hub will have a liaison within the Nexus Mutual core team (proposed to be Hugh) to discuss proposals and opine on the viability of implementation, as well as aiding in translation of proposals into technical requirements for the engineering team.
We expect to maintain a direct line of communication with the core team and other Hubs to both request their assistance and provide our skills on an ad-hoc basis as appropriate.