In a first for the NZ market a new company is seeking up to almost $100 million to invest in cryptocurrencies via a Financial Markets Conduct Act (FMC) regulated share issue launched this week.
The launch comes amid a low-ebb for the crypto market and an alleged exchange fraud in NZ that has disappeared upwards of $20 million of ‘digital assets’. Police are currently investigating Christchurch-based Cryptopia after a reported $23 million plus of client cryptocurrency holdings was stolen by hackers this January.
According to documents lodged on the Disclose website, the Crossgate Capital share offer – the brainchild of three directors of the NZX-listed retirement village investment fund, Senior Trust – intends to invest any proceeds in a basket of cryptocurrency assets whose market valuation is at least NZ$500 million.
“We are a patient capital investor and have a long-term investment mandate,” the Crossgate website says. “Due to the high levels of volatility in this asset class, the approach is not to undertake an active trading program but to ‘buy and hold’.”
The company is backed by foundation shareholders – Scott Lester, Raymond (Clive) Jimmieson and John Jackson – who also own Bluemont Capital Management (BCM), the firm appointed to manage any Crossgate assets.
All three shareholders form the core Senior Trust management team while Neville Brummer, is independent director of both Senior Trust and the Crossgate venture.
Crossgate also includes NZ blockchain enthusiast, Stephen Macaskill, as a specialist adviser. Macaskill runs NZ digital currency exchange, Dasset.
While the Crossgate shares will be issued under FMC rules, the offer is not a licensed managed investment scheme and therefore “does not have an FMA-licensed manager or an FMA-licensed independent supervisor to govern its investment activities”, the product disclosure statement (PDS) says.
“The Manager [BCM] is paid a management fee of 3%, equivalent to 3% of Crossgate Capital’s Company Value
per annum, plus GST (if any),” the PDS says. “A Performance Fee is payable to the Manager conditional upon a predetermined level of performance and payment is triggered only when certain events occur.”
Under a complicated valuation structure, which may vary by share tranche, the Crossgate performance fee will add up to 20 per cent of any increase in the company value over each 12-month period (subject to a high water mark) – and paid in cash.
Based on a $50 million valuation at the start of an annual period, Crossgate would scoop $2 million in performance fees if the company was valued at $65 million 12 months later.
The offer also includes a 3 cents per share brokerage fee (payable to BCM), which will cover external fund-raising costs “excluding marketing and promotional costs which are payable by Crossgate Capital”.
Up to $125,000 of investor money would be used to pay Crossgate board fees, currently set at $25,000 per director. Brummer, Jamieson and Lester are listed as Crossgate directors while the latter two are also BCM directors.
Crossgate will issue up to 97 million unlisted ‘class A’ shares starting this Wednesday (Waitangi Day) at $1.03 apiece, adding to the 3 million class B securities held equally by the three founders.
The Crossgate offer closes in February 2024.
“At this stage, Crossgate Capital holds all of its investments directly, rather than by way of a custodian,” the PDS says. “However, Crossgate Capital reserves the right to appoint a Custodian at a later date.”
Bitcoin, the go-to cryptocurrency, has languished at sub US$3,500 prices this year, well off the historical high of almost US$20,000 recorded near Christmas 2017.