Australian bookmaker Tom Waterhouse’s venture fund achieved a 63.5% annualised return through July 2026 while investing in firms connecting event contracts to business risk.
Waterhouse VC has delivered a net total return of 2,948% since inception in August 2019, equivalent to 63.5% annualised, as at 31 July 2026, assuming reinvestment of all distributions. The Australian gaming and wagering-focused venture capital fund, led by bookmaking veteran Tom Waterhouse, invests globally in publicly listed and private companies across the sector and is available only to wholesale investors. Past performance does not reliably indicate future performance.
The fund’s August newsletter examined how prediction markets could enable businesses to hedge commercial exposures, highlighting both the infrastructure that has emerged and the intermediary layer still required to turn event contracts into practical risk management tools.
Ice-cream shop hedges weather risk
A Los Angeles ice-cream business, 28 Wishes, reports that sales drop roughly 20% when temperatures fall below 70°F. Since April, the owners have been placing about $20 a day on Kalshi weather contracts, generating profits of up to $1,500 a month, according to the newsletter.
Payouts can offset lost sales on cold days, though the hedge remains imperfect. Contracts settle against the temperature recorded at a selected weather station rather than actual sales. The arrangement may therefore pay out even when the shop stays busy, or fail to trigger when cold weather keeps customers away. This mismatch is known as basis risk.
Businesses must select a weather station, temperature threshold and time period that closely match the conditions driving their revenue in order to minimise basis risk. Prediction markets have made thousands of events tradeable, but a tradeable contract does not automatically become a useful commercial hedge, the newsletter noted.
Waterhouse VC sees the opportunity in firms that connect business exposures with suitable contracts and specialist capital.
Liquidity from wider risk pools
Indemnity insurance pays against a covered loss. Parametric insurance can settle against an agreed trigger but is still written for a customer with an insurable interest. Event-contract traders need not suffer any corresponding loss.
A business hedging lost revenue can trade against weather forecasters, sports specialists, market makers and recreational traders. Their combined risk appetite can create liquidity for exposures that would otherwise require bespoke underwriting, the newsletter said.
Exchanges provide the market infrastructure but not the exposure analysis, structuring and distribution needed to turn contracts into business hedges. Where natural liquidity is thin, specialist capital providers must also price and hold the risk while managing correlated exposures across customers.
Kalshi advertises more than 8,000 live markets. Reuters reported $27bn of trading on the platform during the 2026 World Cup. The commercial test is whether that infrastructure can support repeatable business hedging.
Structuring the bar hedge
A New York bar expecting to lose $50,000 of profit if the Knicks miss the conference finals could buy 62,500 “Knicks miss” contracts at $0.20, costing $12,500. If the Knicks are eliminated, the contracts pay $62,500, producing a $50,000 gain before fees. If the team advances, the contracts expire worthless and the hedge costs $12,500.
The position only works if the bar’s $50,000 figure is sound. The owner must judge how many home games are at risk and what each contributes, account for staffing and stock already committed, decide how much to cover and adjust as the series develops, the newsletter explained.
Few publicans will manage that unaided as prices and exposure change. Some may use AI tools to analyse and adjust their exposure; others will seek advice from domain experts. In either case, regulated distributors can arrange compliant execution.
Capacity beyond past volume
In June, Susquehanna’s Jeremy Maletz said the firm could quote tens of millions of dollars of risk in a contract with only about $100,000 of past trading. It could do so if the market’s price discovery and Susquehanna’s own checks gave it confidence in the price.
Specialist market makers can therefore supply far more capacity than past turnover suggests, the newsletter said. That capacity must be managed across customers. Ten unrelated bars hedging the same Knicks result create one concentrated exposure for the provider. The same problem arises when businesses hedge the same storm, election or policy decision. A provider must aggregate positions, assess correlations, set limits and decide when to hedge or reduce exposure.
Capital is another constraint. A standalone Kalshi event-contract position is generally collateralised against its maximum possible loss. If a market maker buys 100 million “No” contracts at $0.99 when “Yes” is priced at $0.01, it must commit $99m. If “No” wins, the contracts settle for $100m, generating a $1m profit before fees. If “Yes” wins, the market maker loses the $99m committed.
That capital remains tied up until settlement. A long-dated position can therefore lock up a substantial sum for a small potential return.
Settlement and regulatory concerns
Commercial users also need confidence in settlement. In April 2026, abrupt temperature jumps at Paris Charles de Gaulle Airport settled profitable Polymarket positions. After examining the data and equipment, Météo-France filed a police complaint alleging interference with an automated data-processing system.
For a business, the settlement source, treatment of corrections, fallback data and dispute procedures all affect whether the hedge performs as expected, the newsletter said.
A July CFTC staff advisory reiterated that registered exchanges should identify settlement sources before listing contracts and assess their reliability, objectivity and resistance to manipulation.
Regulation will shape how these markets scale globally. The same hedge may be available in one jurisdiction and restricted in another. This creates a role for distributors that can navigate different regulatory regimes and arrange compliant access.
Waterhouse VC perspective
The most credible early commercial uses are short-dated, data-rich exposures with objective settlement sources and enough recurrence to standardise, according to the newsletter. Catastrophe and other long-tail risks require bespoke analysis and tie up capital for longer.
The intermediary layer is likely to be software-led rather than purely advisory. A platform could use a business’s operating data to estimate its exposure, identify suitable contracts, recommend the hedge size and execute within agreed limits. Firms combining proprietary data with direct exchange connectivity should therefore scale more efficiently than traditional advisers.
Waterhouse VC is already working with White Swan Data on a prediction-market strategy that provides liquidity on regulated exchanges. Its initial focus is sport. The same disciplines of pricing, portfolio construction, collateral management and execution apply elsewhere, but the underlying data and pricing edge do not transfer automatically.
The fund therefore expects specialist teams to emerge around individual risk categories as commercial demand develops.
Prediction markets have made a growing range of events tradeable, the newsletter concluded. The commercial opportunity is to build the underwriting, distribution and capital required to turn those contracts into useful hedges.