PwC, in conjunction with the Alternative Investment Management Association (AIMA), has published its 2024 Global Crypto Hedge Fund Report.
Key findings include:
Digital asset investments rise as regulatory clarity and ETFs boost confidence: Nearly half (47 per cent) of traditional hedge funds surveyed this year have exposure to digital assets, up from 29 per cent in 2023 and 37 per cent in 2022, driven by increased regulatory clarity and the launch of spot cryptocurrency ETFs in Asia and the US.
Among those already invested, 67 per cent plan to increase their exposure over the next year, with none planning to reduce, a marked increase from 46 per cent a year ago. This may be spurred on by the successful launch of spot bitcoin ETFs, which 64 per cent of respondents view as a positive development for the digital assets industry.
More sophisticated investment strategies, shifting to derivatives: There has been a notable shift towards derivative trading in digital assets by traditional hedge funds, with its use rising to 58 per cent in 2024 (up from 38 per cent in 2023), while spot trading dropped to 25 per cent this year after peaking at 69 per cent last year.
Growing interest in tokenisation despite regulatory challenges: Interest in fund tokenisation is also growing, with 33 per cent of hedge fund respondents either committed to or exploring tokenisation, compared to around a quarter of traditional hedge funds last year.
Rising institutional client demand: 43 per cent of traditional hedge funds—whether invested or not in digital assets—are seeing increased interest from institutional clients. The report finds that, currently, family offices and high-net-worth individuals (HNWIs) remain the largest investor categories in digital asset focused hedge funds, followed by fund of funds.
Hedge fund sector remains cautious: Despite the industry’s growth, many traditional hedge fund managers remain hesitant, with 76 per cent of those not currently invested in digital assets unlikely to enter the space within the next three years, up from 54 per cent in 2023. The top barrier, cited by 38 per cent of funds, is the exclusion of digital assets from investment mandates, rising from fourth place last year. While regulatory uncertainty remains a key concern, it has eased somewhat due to the adoption of clearer regulatory frameworks like the EU’s MiCA.
“Increased regulatory clarity and rising institutional client demand are driving increased investment appetite in digital assets from hedge funds, with nearly half (47 per cent) of traditional hedge funds surveyed this year having exposure to the asset class – up from 29 per cent in 2023 and 37 per cent in 2022,” says Albertha Charles, PwC Global Asset & Wealth Management Leader.
“Despite the industry’s growth, the hedge fund sector still remains cautious – with 38 per cent of traditional hedge funds citing exclusion of digital assets from investment mandates as the top barrier to entering the market.”