Hedge funds overwhelmingly regard digital assets as a major part of the investment landscape, according to a new study by Laser Digital, Nomura’s digital asset subsidiary, with 98% of those surveyed seeing digital assets as an investment diversification opportunity alongside traditional asset classes such as fixed income, cash, equities and commodities.
Hedge funds overwhelmingly regard digital assets as a major part of the investment landscape, according to a new study by Laser Digital, Nomura’s digital asset subsidiary, with 98% of those surveyed seeing digital assets as an investment diversification opportunity alongside traditional asset classes such as fixed income, cash, equities and commodities.
The hedge funds were interviewed as part of a wider independent global survey of professional investors in 21 countries including pension funds, wealth managers, family offices, investment funds, insurance asset managers and sovereign wealth funds.
According to the survey, the vast majority of hedge funds (94%) would like to see digital assets more closely integrated with traditional assets to produce ‘all-weather’ income strategies to help cope with the risk of inflation and the debasement risk of fiat currencies.
Around 82% of hedge fund professionals interviewed meanwhile, said that it is important to have the backing of a large traditional financial institution for any digital asset fund or investment vehicle before they or their clients would consider putting money into it.
Seven out of eight (88%) hedge funds interviewed are positive about the digital asset class in general and bitcoin and ether in particular over the next 12 months, while 12% are neutral. Around four in five (82%) of the hedge fund professionals interviewed said they or their clients are currently considering investing in digital assets.
Bitcoin and ether are seen as providing a foundation of the Web 3.0 economy and representing a long-lasting source of investment opportunities, according to over a third (35%) of hedge fund survey respondents, while more than two-fifths (43%) believe they represent a long-lasting source of investment opportunities while also being highly speculative assets, and 22% view them simply as highly speculative assets.
Hedge fund professionals are not just focused on the big two cryptocurrencies though, with 88% of those interviewed saying they see value in being exposed to other carefully-chosen cryptocurrencies beyond bitcoin and ethereum. Just 12% meanwhile, saw no value in expanding into other cryptocurrencies.
In terms of maximum allocations to digital assets, the survey revealed a wide spread of risk boundaries among hedge funds, with some 22% of those questioned saying they can invest up to 5% while 39% can invest up to 4%.
Nearly half (47%) say their and/or their clients’ total percentage exposure to digital assets will be between 5% and 10% over the next three years.
The study also looked at hedge fund professionals’ preferred exposure to the digital asset class and found Momentum at 76% the most popular ahead of Value at 69% and Carry at 55%. However more than two-thirds (69%) said they would favour a risk-adjusted combination of all these factors.
When it comes to challenges, four out of five hedge fund professionals interviewed (80%) say there are legal or regulatory restrictions applicable to them that could prevent their fund or clients investing in a product that references exposure to digital assets.
Most would have to make regulatory filings or notifications as a result of holding or investing in financial instruments focused on digital assets. More than two in three (69%) questioned cited this as an issue while another 6% did not know whether they would have to. A quarter (25%) are confident they would not need to make regulatory filings or notifications.
In addition, around 80% say they are aware of regulatory filings or notifications that the issuer of digital financial instruments must make as a result of investors holding or investing in their financial instruments.
Commenting on the research findings, Dr Jez Mohideen, CEO of Laser Digital, said: “Our comprehensive study reveals that the majority of institutional investors surveyed saw a clear role for digital assets in the investment management landscape, and the benefits they can bring, such as greater diversification of portfolios.
“For many, their outlook for major digital assets such as bitcoin and ethereum is positive, but our study also reveals challenges and hurdles for the market. Many of our survey respondents acknowledged that there are legal and regulatory restrictions that could prevent them from investing in digital assets, and these need to be addressed by the industry in cooperation with regulatory authorities.”
