Fidelity Digital Assets eyes service for introducing crypto funds to big investors

Fidelity Digital Assets has been building out its team and is now appears poised to expand its suite of product offerings, The Block has learned. 

The crypto-focused subsidiary of $7.9 trillion asset manager Fidelity has seen an increase in interest in its existing products from investors "across the board," according to a spokeswoman. Fidelity Digital Assets offers a custody service for bitcoin as well as an execution service, which helps institutional investors trade bitcoin in large size.

Since the beginning of the year, ongoing market turbulence and fears around impending inflation drove new interest from traditional investors, the firm has said. 

Fidelity Digital Assets has ambitions to expand its business outside of custody and execution, according to people familiar with the process. A spokeswoman said the firm "routinely in discussions with market participants to understand the needs in the market to help inform our product roadmap. Our current product offering includes custody and execution services."

Prime broker wars

Still, the company appears to be moving in a similar direction as other service providers in the space, which are aspiring to build a full-scale prime broker.

In traditional finance, prime brokers sit in between institutional investors and the market, offering an array of services, including custody, execution, and consulting. Market participants have long said that the addition of prime brokerage services to the crypto market could lure institutional investors from the sidelines. Prime brokers, in theory, would make the trading and investing experience more seamless and capital-efficient. 

As for Fidelity Digital Assets, the company has yet to bill itself as a prime broker. But its team has been conversing with crypto hedge funds about possibly offering a staple of the traditional prime brokerage world: capital introduction (or cap intro, as it's known on Wall Street).

As the name suggests, cap intro constitutes the introduction of hedge funds to investors looking to allocate capital. It's a service Fidelity already offers in traditional markets, a fact that uniquely positions Fidelity Digital Assets relative to potential crypto-native competitors. 

According to two people familiar with Fidelity Digital Assets' operations, the firm has been talking with clients and potential clients about its relationships with some of the world's largest capital allocators, spanning hedge funds, funds of funds, and pensions. Some of those investors have expressed interest in acquiring crypto exposure through an actively managed fund. Indeed, Henri Arslanian, global crypto leader at PwC, noted that prime brokerage would not just bring in new capital but also benefit crypto hedge funds. 

"Some of the biggest beneficiaries of strong crypto prime brokerage offerings will be crypto hedge funds," Arslanian, previously a director within UBS's capital introduction team, said in an email to The Block. "Such funds will be able to benefit not only of better pricing and capital efficiency but also eventually of some add-on services like capital introduction and consulting services."

To be sure, Fidelity Digital Assets wouldn't be alone in its primer broker ambitions.

Coinbase, which recently snapped up aspiring prime brokerage firm Tagomi, has been offering capital introduction services to a select group of clients, according to several people familiar with the situation. 

Recent additions to the team

Meanwhile, Fidelity Digital Assets continues to expand its team, a process that includes the recent hire of Circle's former chief technology officer. According to a marketing materials shared with The Block, Pete Farland joined the firm as its chief technology officer to lead a team that will "play a critical role in enabling timely delivery of new products and services, to meet the evolving needs of our institutional clients, while maintaining the strength of our core capabilities." Farland reports to president Tom Jessop.

The company also recently welcomed Manuel Nordeste, previously an executive director at Goldman Sachs. According to his LinkedIn profile, Nordeste, based in the UK, is on Fidelity Digital Assets' business development team.

The company may soon add more new faces. On the hiring front, the business seeks to bring on a new director on the business development team to "develop and execute strategies that will create deep and lasting partnerships with institutional clients.

Fidelity Digital Assets is trying to hire a new trading product manager who would develop new relationships with market-making firms and contribute to the company's overall product roadmap.