Total AuM of Crypto Hedge Funds almost doubled in 2020Jacob Wolinsky
- Total AuM of Crypto Hedge Funds almost doubled in 2020 to reach US$3.8 billion (vs US$2 billion in 2019).
- Crypto Hedge Funds on average returned 128% in 2020 (vs +30% in 2019).
- 47% of Traditional Hedge Fund managers surveyed representing US$180 billion of AuM are already invested or looking at investing in crypto.
PwC and Elwood Asset Management (“Elwood”) have today published their third annual report examining the global crypto hedge fund landscape. The report is based on data from research in the first quarter of 2021 on crypto hedge funds (“Crypto Hedge Funds”).
This year, the Alternative Investment Management Association (“AIMA”) was invited to partner on this initiative and provide insights into the rising interest in the digital assets industry from non-crypto focused hedge fund managers (“Traditional Hedge Funds”) to provide the most in-depth overview to date of the hedge fund industry’s position on crypto and digital assets
Key Findings on Crypto Hedge Funds:
Market and performance overview:
- We estimate that the total AuM of Crypto Hedge Funds globally increased to nearly US$3.8 billion in 2020 from US$2 billion the previous year.
- The percentage of Crypto Hedge Funds with AuM over US$20 million increased in 2020 from 35% to 46%.
- The average AuM for this year’s surveyed funds increased from US$12.8 million to US$42.8 million, while the median AuM increased from US$3.8 million to US$15.0 million.
- The median Crypto Hedge Fund returned +128% in 2020 (vs +30% in 2019)
- Most Crypto Hedge Funds trade Bitcoin (92%) followed by ETH (67%), LTC (34%), LINK (30%), DOT (28%) and AAVE (27%).
- The median best performance strategy in 2020 was discretionary long only (+294%) followed by discretionary long-short (+129%), multi-strat (+114%) and quant (+72%).
Location, management and investors:
- The vast majority of investors in Crypto Hedge Funds are either high-net worth individuals (54%) or family offices (30%).
- Funds tend to be domiciled in the same jurisdictions as Traditional Hedge Funds, with the top three being the Cayman Islands (34%), the United States (33%) and Gibraltar (9%).
- The most common location for Crypto Hedge Fund managers is the United States (43%), followed by the United Kingdom (19%) and Hong Kong (11%).
Key Findings on Traditional Hedge Funds:
Investments in Crypto:
- Around a fifth of Traditional Hedge Funds surveyed representing US$180 billion in AuM are currently investing in digital assets (21%); the average percentage of their total hedge fund AUM invested in digital assets is 3%.
- 86% of those Traditional Hedge Funds currently investing in digital assets intend to deploy more capital into the asset class by the end of 2021.
- Around a quarter of Traditional Hedge Funds who are not yet investing in digital assets confirmed that they are in late-stage planning to invest this year or looking to invest (26%).
Barriers to Investments:
- Regulatory uncertainty is by far the greatest barrier to investing (82%). Even those who do invest in digital assets cite it as a major challenge (50%). The lack of infrastructure or service provider availability also remains a barrier with custody being the area most in need for improvement.
- In terms of other reasons to not invest, client reaction/reputational risk is high (77%) as well as digital assets being outside the scope of current investment mandates (68%). Almost two thirds of Traditional Hedge Funds said that they don’t have enough knowledge of digital assets (64%), suggesting the need for more education.
- Around two thirds of Traditional Hedge Funds said that if the main barriers were to be removed they would either actively accelerate investment in digital assets or potentially change their approach and become more involved (64%).
Commenting on the report, Henri Arslanian, PwC Crypto Leader 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.”
Commenting on the report, James Stickland, CEO of Elwood said:
“Although relatively small compared to the passive investment vehicles and venture capital funds, the Crypto Hedge Funds industry continues to develop within the broader digital asset ecosystem. We have seen a dramatically increased pace of digitalisation due to the COVID-19 pandemic, and we hope our annual report provides the greater transparency and education required to further the progress.”
Commenting on the report Jack Inglis, CEO of AIMA said:
“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.”
At PwC, our purpose is to build trust in society and solve important problems. We’re a network of firms in 158 countries with over 250,000 people who are committed to delivering quality in assurance, advisory and tax services. Find out more and tell us what matters to you by visiting us at www.pwc.com.
The PwC Global Crypto Team is composed of over 200 professionals active in over 25 countries that offer a “one stop shop” solution for our crypto clients across our multiple lines of service. Our clients range from crypto exchanges, crypto funds, crypto investors and token issuers, traditional financial institutions moving into the crypto space, as well as national regulators and central banks with regards to their crypto policies. Find out more by visiting us at www.pwc.com/cryptoservices
PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details.
About Elwood Asset Management
Elwood is an investment firm established in 2018 which specialises in digital assets. The team at Elwood combines an institutional heritage in finance with a deep knowledge of blockchain technology to create breakthrough products for global investors. In December 2018 Elwood launched its first product, the Elwood Blockchain Global Equity Index, which offers investors exposure to the growth in the blockchain ecosystem via a highly liquid and regulated vehicle.
Elwood Asset Management Services Limited (FRN 823616) is an Appointed Representative of MJ Hudson Advisers Limited (FRN 692447), which is authorised and regulated by the Financial Conduct Authority.
Find out more at www.elwoodam.com
The Alternative Investment Management Association (AIMA) is the global representative of the alternative investment industry, with around 2,000 corporate members in over 60 countries. AIMA’s fund manager members collectively manage more than $2 trillion in hedge fund and private credit assets.
AIMA draws upon the expertise and diversity of its membership to provide leadership in industry initiatives such as advocacy, policy and regulatory engagement, educational programmes and sound practice guides. AIMA works to raise media and public awareness of the value of the industry.
AIMA serves as the global voice of the alternative investment management industry in the digital assets space. AIMA’s work in digital assets is overseen by our global Digital Assets Working Group (“AIMA DAWG”). The Working Group is a senior-level industry steering group tasked with driving AIMA’s regulatory engagement, thought-leadership initiatives and operational guidance in the growing area of digital assets.
It encourages thought-leadership across the industry and shares innovations with market participants and regulators to create a feedback loop that encourages the institutionalisation of digital assets.
AIMA is committed to developing skills and education standards and is a co-founder of the Chartered Alternative Investment Analyst designation (CAIA) – the first and only specialised educational standard for alternative investment specialists. AIMA is governed by its Council (Board of Directors).
For further information, please visit www.aima.org