More than one-in-four hedge fund managers are expecting to increase their exposure to cryptocurrencies in the next one to two years, according to the 2021 EY Global Alternative Fund Survey.
More than one-in-four hedge fund managers are expecting to increase their exposure to cryptocurrencies in the next one to two years, according to the 2021 EY Global Alternative Fund Survey.
This compares with 20 per cent of institutional investors who say they intend to increase their exposure to crypto-related assets.
EY says that alternative fund managers have become more active participants in the sector, drawn by uncorrelated return profiles and continued investment in institutional-grade infrastructure to support this evolving asset class.
As the industry and regulators continue to better understand this asset class, EY believes that the alpha-generating opportunities will certainly create more incentive for alternative fund managers to participate in this strategy.
EY writes: “The largest managers were most likely to increase their exposure, with 36 per cent of hedge fund managers with over USD10 bilion in AUM, and 32 per cent of managers with USD2 billion to USD10 billion in AUM reporting that they expect to increase their crypto AUM.”
Despite an increase in activity in 2021 though, crypto allocations remain low though with many managers cautious to enter the space.
EY writes: “Only a small number of the managers we interviewed reported that they have exposure to crypto markets, with 10 per cent of the hedge fund managers and just four per cent of the private equity managers reporting crypto allocations. The managers we interviewed generally offer more traditional alternative strategies, and among those that do have exposure in crypto as part of their overall portfolio, AUM dedicated to crypto remains small, at one to two percent for hedge fund managers.
“However, for those managers who are allocating funds to crypto, they have a variety of ways to achieve their exposure beyond investing in crypto currencies directly. This includes investing in crypto derivatives, listed funds, and investing in companies with exposure to crypto markets.”
When it comes to the reasons for not investing in crypto-related assets, managers interviewed for the survey said that crypto does not currently fit with their investment strategy and also highlighted the uncertain regulatory treatment of crypto, high volatility, ESG concerns, and immature market structure as barriers to entry.
