Hedge funds look to increase crypto exposure

Bitcoin’s value soared last year, boosting the assets of crypto hedge funds from $2 billion to $3.8 billion. While the median return in 2020 among crypto hedge funds was 128% (compared to 30% in 2019), discretionary long-only funds performed best with a median return of 294%, the report said. Hedge funds with quantitative strategies — the most common, representing 37% of crypto funds — had a median return of 72%.

Several cryptocurrencies surged earlier this year but the past month has been especially volatile, with Bitcoin’s price down from a high above $60,000 to trade below $40,000 on Tuesday.

Bitcoin was the most common holding among crypto hedge funds (92%), followed by Ethereum
(67%), Litecoin (34%), Chainlink (30%), Polkadot (28%) and Aave (27%), the report said.

Beyond the crypto-focused funds, the survey found 21% of traditional hedge funds had some crypto exposure — an average of 3% of their total assets. The vast majority (86%) of funds that held digital assets planned to increase their exposure this year, while roughly one-quarter of funds not currently invested in digital assets said they intended to be.

The survey found regulatory uncertainty to be the greatest barrier (82%) for managers, followed by client reaction or reputational risk (77%) and digital assets falling outside the scope of investment mandates (68%).

Henri Arslanian, PwC’s crypto leader, said he expects inflows into crypto hedge funds to increase over the coming months.

“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,” Arslanian said in a release.

The median management fee for crypto hedge funds last year was 2%, with a 20% performance fee.