Key employee exits as John Burbank’s Passport Capital attempts to execute its complicated bet on crypto

A well-known cryptocurrency employee of John Burbank's Passport Capital has left the firm as it looks to execute its complicated strategy in the digital currency market, sources familiar with the situation tell The Block. 

Burbank's Passport Capital rocketed to stardom after it made a big bet against the subprime mortgage market prior to the 2008 financial crisis. The hedge fund, which invests in Saudi Arabian equities, launched in 2000 and at its height, managed more than $5 billion.

It began investing in cryptocurrency-related assets in earnest at the beginning of 2018 with the launch of the so-called Digital Network Fund, according to people familiar with the situation. 

Now, a key player working for the fund has left, according to those sources. Joe McCann, formerly head of systematic trading and technology at the firm, is no longer an employee. His exit followed that of Chris Coble, a director at the firm, who is set to join Morgan Stanley as a financial adviser. Coble told The Block he left because he wanted to "be on the wealth management side vs. the institutional side."

The firm's general counsel Julie Kim confirmed the exits, but declined to comment further. 

McCann's systematic quant strategy was part of its unofficial — arguably complicated — crypto division dubbed Passport Digital Holdings, which included the aforementioned Digital Network Fund, launched in 2018 with a broad mandate to invest in digital assets as well as other funds, including Passport's Digital Currency Fund and other crypto hedge funds, according to two sources familiar with the situation.

Paolo Fragomeni, a serial chief technology officer, is now taking the reins of systematic crypto trading, according to several sources. 

Elsewhere, William Peets serves as chief investment officer at the firm, overseeing the activities of the Digital Network Fund. Peets, who joined the firm in 2014, previously ran risk for the company. Jon Kol, previously a fixed income analyst at Morgan Stanley, joined the firm's cryptocurrency team in February 2018.

Kol leads early stage investing for the firm's cryptocurrency business. Still, Passport Capital has yet to make a single early stage venture investment. As for the Digital Network Fund, two sources confirmed it only raised money from a small number of investors.

Another person close to the situation said the firm is taking a long-term investment outlook with the crypto market, which it thinks will position itself strongly during the downturn. 

Elsewhere, the firm has been hit by some struggles, including the shutdown of its flagship fund in 2017, as previously reported by Bloomberg. Passport's assets declined from $5 billion to $2.4 billion in April 2017. 

"You will not hear about Passport shutting down -- there is too much opportunity available to do that,” Burbank wrote in an investor letter in 2017, as reported by Bloomberg.

The fund managed $900 million at the time of that Bloomberg article. Sources tell The Block its AuM is now significantly lower.