PwC, Elwood and AIMA have published their third annual report on crypto hedge funds.
The report’s findings are based on data collected up to the first quarter of 2021, so they do not take into account recent market activity, but they do describe well what happened in 2020.
The report is titled 3rd Annual Global Crypto Hedge Fund Report 2021, and reveals that total crypto hedge fund assets almost doubled last year to $3.8bn, compared to $2bn in 2019.
Moreover, while they had returned an average of 30% in 2019, their returns jumped to 128% in 2020.
The average assets under management by each individual fund increased to $42.8 million, with most funds trading BTC (92%), followed by ETH (67%), LTC (34%), LINK (30%), DOT (28%) and AAVE (27%).
Clients of these funds are usually high net worth individuals or family offices, and the funds tend to be based in the same jurisdictions as traditional hedge funds, such as the US (43%), UK (19%) and Hong Kong (11%).
Hedge funds choose crypto
The percentage of traditional hedge funds already investing in digital assets is still low (21%), with an average of only 3% of total assets invested in digital assets. However, 86% of traditional hedge funds already investing in digital assets intend to invest more in them, while 26% of traditional hedge funds that are not yet investing in digital assets said they are in the advanced stages of planning to invest by the end of the year.
The main barrier to entry is regulatory uncertainty (82%), followed by the significant risks inherent in such investments (50%).
PwC Crypto Leader Henri Arslanian said:
“We expect inflows into crypto hedge funds to continue to increase over the coming months as more and more institutional investors decide to allocate to this fast growing space. For many institutional investors, an allocation to a crypto hedge fund is the natural first step of their crypto journey as it allows them to observe and learn about the asset class via a vehicle and structure they are familiar and comfortable with”.
AIMA CEO Jack Inglis added:
“As a growing asset class, there has been significant growth in traditional hedge funds investing in digital assets, with the majority of those that have already invested intending to deploy more capital. Diversification and exposure to a new value creation ecosystem are cited as drivers for investing in digital assets. This is unsurprising given that hedge funds tend to be early adopters, at the forefront of innovation whilst remaining committed to achieving the best performance possible.
Further education and regulation could lead to the acceleration of further growth and interest from traditional hedge funds”.