Hedonova: Traditional, Exotic and Esoteric Alternatives

Democratising extensive, exclusive and innovative diversification

Hamlin Lovell
Originally published on 10 February 2022

Alternative investments are a very broad church, and the definition of alternatives depends on the starting point. For investors constrained to a classic equity and bond split, then merely adding corporate credit through high yield bonds can sometimes be described as “alternative”. Hedonova however has a hyper-holistic perspective on alternatives, expanding the boundaries of the space, by embracing new asset classes, vehicles and instruments ranging from cryptocurrencies, non-fungible tokens (NFTs) and carbon credits, whilst also being selectively exposed to carefully selected segments of centuries-old markets such as equities, real estate, art, fine wine, and vintage whisky. ESG is integrated into the investment process. Hedonova does not actively invest into polluting firms, and considers variables such as long-term sustainability, climate risk and carbon footprints and pursuing active ownership in terms of seeking transparency, engagement, improved performance, and proxy voting.

Hedonova manages a new and innovative multi-strategy investment vehicle, which was seeded by its founders and a leading US multi-strategy hedge fund, where several of the founders worked. While there, Hedonova’s lead portfolio manager, Suman Banerjee, invested in green energy assets including sustainable real estate, and allocated to litigation financing in India and Australia; and Hedonova’s investor relations head, Neel Aryan Birla, traded emerging market currencies before moving to an investor-facing role. Starting in May 2020, the Hedonova team spent around a year testing out systems and setting up compliance structures before opening the vehicle up to external investors in 2021. “The objective is to diversify the investor base and for a limited period Hedonova will accept investments as low as USD 1,000 from accredited investors; this minimum will be increased to USD 10,000 in the middle of 2022,” says Birla. 

We are very bullish. SpaceX has a huge edge over competitors in terms of cost per kilogram of delivery into orbit. We think that Starlink alone is worth at least $50 billion.

Neel Aryan Birla, Head of Investor Relations, Hedonova

Hedonova offers investors access to a range of liquid and illiquid alternatives, spanning traditional, exotic, and esoteric asset classes and strategies. The approach has made a very strong start, with key return drivers thus far having been cryptocurrencies up 700%, litigation financing, and specialist areas of property including data centres and vacation rentals. Hedonova reports an extended internal rate of return (IRR) while its underlying managers report a mix of money weighted and time weighted returns. Roughly one third of the book is marked to market, one third is marked to counterparty quotes, and one third is valued according to models. 

Hedonova’s portfolio construction seeks out lowly correlated strategies including art, equipment finance, collectibles, wine, and niche real estate with a range of different return drivers and patterns. Broad brush target allocation weights range from 2% for student financing to 20% for start-ups and will fluctuate with some active trading. For instance, the strategy started out with 3% in cryptocurrencies, which at one point reached 23%, and has been regularly top sliced to keep it below 20%. Hedonova was also tactically short of cryptocurrencies in late 2021. Outsourcing some non-core functions such as marketing and technology allows the core team to focus on investment research, analysis, and some active trading – where cash averaging around 8% is used for some opportunistic trading.

Here we highlight some distinguishing features of Hedonova’s analytical framework for a selection of strategies and asset classes, as of early 2022. The portfolio is fluid, and the team are researching a strong pipeline of new ideas, but these examples illustrate some aspects of the investment philosophy.  

Start-ups: an eclectic mix of mature venture opportunities 

Start-ups is almost a misnomer given that the average age and size of private companies has been growing as they come to public markets later in life than historically. Hedonova only invests in unicorns – private companies valued at over $1 billion – and will participate in secondary or follow-on rounds such as series C or series D rather than earlier stage series A or B funding or seed/pre-seed funding. Currently, the US and India have the largest number of unicorns and they also dominate Hedonova’s venture capital and private equity portfolio. Stakes are accessed through the Forge platform and direct from venture capital firms.


Contemporary art is Hedonova’s priority because it has generated the highest returns – 14.5% over the past 25 years. “In contrast, impressionists have not appreciated much faster than inflation.”

One example is SpaceX. “We are very bullish. SpaceX has a huge edge over competitors in terms of cost per kilogram of delivery into orbit. We think that Starlink alone is worth at least $50 billion,” says Birla. Hedonova’s grassroots research shows how Starlink could make the internet accessible to more people in emerging and frontier markets: “We conducted extensive research where a team of interns reached out to folks in the remotest parts of the world, such as shanty towns in Kenya, mountain towns in northeast India, the barren lands of Kazakhstan, and Urubamba in Peru. A team of 25 interns made 6,000 interactions with people from these places and an overwhelming 62% were looking forward to getting their hands on Starlink. The product is going to be a gamechanger in bringing fast internet to people who do not even have broadband or 4G,” says Bannerjee. This is very much a bottom-up investment: Hedonova do not believe they could add value by simply investing in a thematic space ETF spread over multiple companies.

Hedonova has also taken a very selective approach to next generation batteries, investing in battery maker Sila, which is a relatively advanced player with revenue of around $450 million. “Our investment in Sila is driven by the applications of their batteries and the fact that they’re so lightweight. EV applications are just part of the narrative. The actual revenue generator is going to be mobile phone batteries, medical equipment like pacemakers, RFIDs and anything where weight is an issue,” says Bannerjee.

In food delivery Hedonova is focused on one country – India, and one firm – Swiggy, which has a duopoly with Zomato. Whereas the US and European listed food delivery space remains largely unprofitable, Bannerjee explains why India is a special case. “The net economics are negative for all the regions. However, they’re slightly favourable in Asia for several reasons: first, denser cities mean that delivery partners can do up to 6 to 7 deliveries in a single run, hence reducing the cost. Second, labour costs in India for delivery partners are very low ($10 to $13 a day). Third, a culture of ordering persists in Asia whereas westerners like to go out for meals. The reasons for this are: it’s hot in Asia and no one wants to step out; and the traffic is unbelievably bad. I lived in Mumbai, and I can vouch for that. The work hours are longer (10 to 11 hours) so do not allow consumers the time or energy to eat out.” Delivery platforms in Asia are also diversifying beyond food to various other time-saving items of shopping, ad hoc collections and deliveries including travel documentation, and Swingy is offering alcohol and cigarette deliveries as well as services such as passport and travel visa applications. “They’re pivoting to the convenience model instead of just the food delivery model,” says Bannerjee. Hedonova judges that Swiggy has better customer service and ratings than Zomato.

Not all private investments will hit targets even when the investment thesis is very strong, so alert and nimble trading is sometimes needed in private markets. India’s abrupt move to demonetization to reduce tax evasion in the informal economy, and counter terrorist financing, was a game changer for digital payments as the country went from 80% cash to 10-15% cash overnight. PayTM, into which Hedonova invested pre-IPO, was at that time the only Fintech player and was able to add 100 million new users a week. However, thus far the investment, whilst profitable, has not lived up to Hedonova’s very high expectations. “We are very disappointed by PayTM. We invested at a valuation of $5.6 billion, the IPO was at $20 billion, and it currently trades at $10 billion. We exited 40% on IPO and are looking to hedge any further downside risk using forward contracts,” says Bannerjee.

Similarly, broker Robinhood has not been profitable for some investors who bought after the IPO, but Hedonova’s weighted average exit price has been above its entry price. “Our buy price on the books is at a valuation of $5.6 billion. Our CEO Alexander made the investment around 2017/2018, which the fund purchased at cost. We have exited 40% of the holdings before IPO and continue to hold the rest,” says Bannerjee.

In food delivery Hedonova is focused on one country – India, and one firm – Swiggy, which has a duopoly with Zomato.

Some of the start-up investments build on Hedonova’s expertise in other asset classes. Hedonova has recently invested into OpenSea, which claims to be the world’s first and largest marketplace for creating and trading in NFTs and collectibles, which are two asset classes that Hedonova also opportunistically invests into directly. Hedonova acquired a stake in Opensea at a discount to a $10 billion valuation that is being sought in a funding round. 

Cryptocurrencies: opportunistic and active long and short trading and mining 

From an ESG perspective, Hedonova emphasizes the financial inclusion benefits of cryptocurrencies, especially for emerging and frontier markets. Roughly 80% of Hedonova’s cryptocurrency exposure has been direct holdings in Bitcoin and Ethereum, rather than using futures or derivatives. The other 20% has included some opportunistic trades in NFTs and investments into Solana and Polkadot, which are geared towards enabling decentralized finance (DeFi). Hedonova has avoided many of the smaller cryptocurrencies: “They are speculative bordering on gambling,” says Birla. 

Yet Hedonova has made some small bets itself. “Solana was a bet more than an investment that paid off and was highly profitable. We initially made it after tracking the ETH and BTC conversions on PancakeSwap and Uniswap, which was a leading indicator of money-flow into Solana. There was no sense in holding on after a 13x return,” says Bannerjee. 

Hedonova also put on some shorts in cryptocurrencies in early December 2021. Bannerjee explains: “We make crypto buy and sell decisions by looking at ETH burns on different platforms. ETH burn indicates actual money being spent. Burn tends to increase when the price is higher, indicating that people are swapping their crypto for digital goods, which tends to resonate with the same sentiments as selling ETH”.

Hedonova also has exposure to crypto mining: “We’re investing in mining property in Bratsk, Russia. The transaction is expected to close in January 2022. This is a real estate investment where we will own the land, the mining rigs and the operator of the mine will pay rent,” says Bannerjee.

Listed equities: for growth and liquidity

The other liquid asset class, listed equities, has been mainly in growth themes such as technology, luxury goods and some China plays. In late 2021, Hedonova bought Visa on a pullback. “This is a momentum trade. Visa has been on a strong uptrend for a long time now and we think it will continue. The recent dip in the S&P allowed us to enter the stock cheaper. Our average buy price is $196,” says Bannerjee. As with cryptocurrencies, Hedonova hedged some equity exposures, for instance by selling call options in early December 2021.

Yield strategies

A variety of strategies are geared mainly towards generating double digit average yields, from property, farming, equipment leasing, litigation, music royalties, peer to peer lending and student financing. Some of them generate a smooth and steady yield while others have a lumpier and more variable pattern of returns. 

We make crypto buy and sell decisions by looking at ETH burns on different platforms. ETH burn indicates actual money being spent.

Suman Banerjee, Lead Portfolio Manager, Hedonova

Real estate: Airbnb rentals, data centres and NFTs

Property is viewed mainly as a yield play, but Hedonova is highly selective, rejecting standard commercial and residential real estate in favour of vacation rentals, warehouses and data centres. “We have identified vacation rental properties that can generate yields as high as 28% from Airbnb lets, and this level of income has increased over the past year,” says Birla.

In data centres, the target total return is 21%, including both income yield and capital growth. “We are focused on parts of Asia and the Pacific Rim, including China, India, Indonesia and Australia, where internet usage is growing very fast. Data centres need to be located locally both for regulatory reasons and to get latency down to milliseconds. A limited supply of datacentres has contributed to exceptional returns,” says Birla. Elsewhere in real estate, there is a bridge with Hedonova’s interest in DeFi. Estate Protocol will turn properties into NFTs, allowing for fractional ownership: “They’re backed by a strong team and are going to allow people to invest in NFTs representing ownership of different kinds of commercial and industrial real estate. We’ll be lead investors in selected properties,” says Bannerjee.

Agronomy: picking the right commodities

Agricultural investments have produced very high IRR returns in 2020: cocoa farms made 29%; plant-based animal feed 39%; an indoor salmon farm in New York 41%; microalgae fish food 56% and organic hemp seed in Colorado 56%. “In 2021 returns will be somewhat lower, due to extra freight costs and other costs, but remain well into double digits,” says Birla.

Equipment finance: B2B and B2C

Equipment finance has searched both B2B (Business to Business) and B2C (Business to Consumer) markets to find the highest returns. “Medical equipment such as MRI scanners can yield as much as 22-24%, which is well above typical rates of 11% and windmills can also command high yields. In parts of Eastern Europe and Asia there is a market for consumers to lease furniture and computers, which can also generate very high yields and rapid payback of initial costs,” says Birla. 

Litigation finance and arbitration: focusing on predictability and hit rates 

Hedonova invests in specialist areas of litigation and arbitration that have defined and relatively short timeframes. “These include bankruptcies in India, which need to be resolved within one year, as well as intellectual property claims in the US and Australia. We do not want to be waiting for more than 36 months,” says Birla. One platform for tapping into this deal flow is LexShares. Hedonova also allocates to private funds run by LSE-listed asset manager Burford.

Hedonova has also allocated to commercial arbitration in the UK, which can be resolved much quicker than litigation. Focus areas include breach of contract and intellectual property disputes. 

Hedonova does not expect to win every single case but expects to win the majority and is engaging due diligence experts to increase the hit rate. “We require at least a 60% hit rate to generate returns of 30% IRR or more. This is assuming Hedonova’s share of settlements remains constant at 70% but that is coming under pressure in the UK and Australia since more and more players in this space are popping up and the percentage is bound to fall to 60% in 2022. Given this, to keep generating strong returns, we must increase the hit rate. The hit rate is directly correlated to the quality of due diligence done at the onset before the decision to fund individual cases is made. We’ve hired a specialist in India for litigation in the peninsula and are in the process of doing the same for the USA,” says Bannerjee.

TikTok is very open with their algorithm. For a fee, they apply something called Sandwiching songs, which takes two very popular songs and sandwiches a song we want between them.

Neel Aryan Birla, Head of Investor Relations, Hedonova

Music royalties: fine tuning algorithms

Music royalties have grown enormously since David Bowie securitized some of his songs into “Bowie bonds” based on 25 albums back in 1997. The revenues from the space are uncorrelated because the key drivers have been areas such as piracy laws and technology company policies. As usual Hedonova is carefully pinpointing niches in the space that are expected to generate exceptional returns. “We hark back to retro music such as TikTok music from the 1990s, which has come back into vogue,” says Birla. “TikTok is very open with their algorithm. For a fee, they apply something called Sandwiching songs, which takes two very popular songs and sandwiches a song we want between them. This is not a new strategy, radio companies have been doing this for decades when they want to popularise a song,” says Bannerjee.

P2P lending: pinpointing selected emerging markets

In peer-to-peer lending, Hedonova has not invested in US consumer risk, but rather has chosen specialist areas in emerging markets. “Cosmetic surgery in Brazil benefits from government subsidies, while weddings in India are part of the social fabric and attract huge spending. We invest in peer-to-peer platforms, which lend to borrowers. In India the model is that the bank makes loans and issues debentures that have an AA+ credit rating. Though returns have been strong at around 14%, they have fallen slightly short of the 17% target,” says Birla.

Student financing: equity rather than loans

In contrast in student finance, Hedonova prefers the US to emerging markets. “We are highly selective, only funding students in areas such as medical science, nursing, computer science and technology, who attend Ivy League universities in the US,” says Birla. Rather than lending to students, Hedonova finances their studies in return for a capped share of future earnings. The average time horizon from funding to full repayment is 6.1 years. “There are no formal secondary markets, but a lot of investment banks buy portfolios of loans, securitising them into debentures, notes or other fixed income instruments,” says Bannerjee.

Capital appreciation strategies

A range of strategies are geared mainly towards identifying luxury goods, rare items, or those with a regulatory mandate, which are likely to appreciate faster than general inflation.

Art: finding the most fashionable contemporary artists

Contemporary art is the priority because it has generated the highest returns – 14.5% over the past 25 years. “In contrast, impressionists have not appreciated much faster than inflation, and Renaissance art is mostly owned by museums. Masterworks is the chosen platform as it lets investors access fractional ownership of artworks, and handles matters such as storage and insurance,” says Birla.

Collectibles: from old antiques to modern sports

In collectibles Hedonova has an interest in antiques and has also homed in on modern sports memorabilia and training shoes/sneakers, an increasingly fashionable segment. In November 2021, records were broken when a pair of red and white Nike Air Ships, worn by Michael Jordan in 1984, sold for $1.47 million.

Wine and whisky appreciation

Wine investments include some of the most well-known Bordeaux wine futures, known as en primeur and are traded on Liv-Ex, but also some less obvious appellations: “We also see stronger return potential in other regions of France such as the Rhone Valley and in new world wines including those from Chile and California’s Napa Valley, which have seen appreciation of 18% annualized,” says Birla. “Whisky is a mix of Scottish – 70%, and Irish – 30%, now. The three largest distillers we are working with are Macallan, Bowmore and Highland,” he adds.

Carbon credits: trading and arbitraging

Hedonova started investing in California carbon futures in 2020 and has made 130% from then to December 2021. Hedonova sees strong upside in this market which is very much geared towards decarbonization and climate friendly economic growth, in line with the Paris Agreement, though differences between regions in the carbon market also throw up opportunities for cross-border trading. “In Europe we’ve been going long on carbon credit futures. Apart from that, we run an arbitrage strategy buying carbon allowance from energy exchanges in India and China (surplus regions) and selling them to California firms (deficit regions),” says Bannerjee.

Terms and investor communications

Investors can track their holdings on the user friendly moneymade.io app. “MoneyMade is poised to become a tool for people to track their alternative investments in one place,” says Birla.

Assets are USD 82 million as of December 2021, and Hedonova intends to seek SEC registration once assets have surpassed USD 100 million. Hedonova offers a Delaware vehicle with monthly liquidity. The potential for liquidity mismatches is mitigated through keeping around 35% in liquid strategies, mainly cryptocurrencies and listed equities, and by investing into illiquids via vehicles such as funds, special purpose vehicles, or tokens that can be traded on a secondary market.

Most of the assets are in USD to match the fund, but some other currency exposures such as Euro or Indian Rupee are hedged back. The underlying managers typically charge around 1 and 10 and may have a hurdle rate under the performance fee that can be as high as 8, 10 or 12% in India or China. Hedonova’s own fees have recently been reduced to 1 and 10 after asset raising made this possible.