How a crypto hedge fund collapsed and dragged many investors down with it

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From $10 billion to zero: How a crypto hedge fund collapsed and dragged many investors down with it

• The bankruptcy filing from Three Arrows Capital (3AC) triggered a downward spiral that wrapped in many crypto investors.
  
• The hedge fund failed to meet margin calls from its lenders.
  
• “3AC was supposed to be the adult in the room,” said Nik Bhatia, professor of finance and business economics at the University of Southern California.
  

As recently as March, Three Arrows Capital managed about $10 billion in assets, making it one of the most prominent crypto hedge funds in the world.

Now the firm, also known as 3AC, is headed to bankruptcy court after the plunge in cryptocurrency prices and a particularly risky trading strategy combined to wipe out its assets and leave it unable to repay lenders.

The chain of pain may just be beginning. 3AC had a lengthy list of counterparties, or companies that had their money wrapped up in the firm’s ability to at least stay afloat. With the crypto market down by more than $1 trillion since April, led by the slide in bitcoin and ethereum, investors with concentrated bets on firms like 3AC are suffering the consequences.

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Founders of bankrupt crypto hedge fund 3AC go missing, as investors try to recoup assets

• Lawyers representing 3AC’s creditors say the physical whereabouts of Zhu Su and Kyle Davies are “currently unknown.”
  
• The filing from Friday also alleges that the founders have not yet begun to cooperate with the liquidation process “in any meaningful manner.”
  

The co-founders of failed crypto hedge fund Three Arrows Capital appear to be on the run from creditors, according to court documents recently filed in New York.

Lawyers representing the creditors say the physical whereabouts of Zhu Su and Kyle Davies, who started Three Arrows in 2012, are “currently unknown,” ahead of a hearing that is scheduled for 9 a.m. ET Tuesday to discuss next steps in the liquidation process. The documents, filed Friday evening, also allege that the founders have not yet begun to cooperate with the liquidation process “in any meaningful manner.” On Monday, lawyers requested the court keep the identity of the creditors anonymous.

Zhu and Davies did not respond to requests for comment.

Three Arrows, also known as 3AC, managed about $10 billion in assets as recently as March. On July 1, the firm filed for Chapter 15 bankruptcy protection from U.S. creditors in the Southern District of New York, after a plunge in cryptocurrencies and the collapse of the terraUSD (UST) stablecoin project wiped out its assets.

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