Despite the nail-biting volatility, about one in three traditional hedge fund managers are now investing in digital assets, up from 20% in 2021, according to PricewaterhouseCooper’s “4th Annual Global Crypto Hedge Fund Report 2022.”
At the same time, the number of hedge funds investing exclusively in digital assets is estimated to have grown to 300, up by 50% since 2019, according to the new PwC survey of over 70 crypto specialist hedge funds and 89 traditional hedge funds. The study was conducted in the first quarter.
Traditional hedge funds manage a total of $436 billion in assets, with over half managing more than $1 billion. The digital assets that hedge fund managers are buying include cryptocurrencies, decentralized exchange-listed tokens, and non-fungible tokens, the Big 4 accounting firm found.
Most traditional hedge funds getting into digital assets are still just dipping their toes, PwC said. The average allocation to digital assets by these funds measures 4%, which is a slight increase from 3% last year.
Meanwhile, for 20% of these funds, digital assets represent between 5% and 50% of assets under management. However, some 57% have less than 1% of total AUM in digital assets, the survey found.
The market downturn doesn’t seem to have tarnished the long-term crypto appetite. Some 29% of hedge fund managers that are not investing in digital assets confirmed that they are in late-stage planning to do so, PwC found.
Furthermore, two-thirds of the funds that are currently investing in digital assets said they intend to deploy more capital into the asset class by the end of 2022.
By strategy, the hedge funds with the most digital asset exposure include multi-strategy funds (32% of which reported having exposure), macro funds (21% of which reported having exposure) and systematic funds (12% of which said they had exposure).
Family offices and high-net-worth individuals are at the forefront of investing in digital assets, PwC found. Some 86% of traditional hedge funds have high-net-worth and family office investors, while 66% of crypto hedge funds do, according to the report.
While the median performance of crypto hedge funds was 63.4 %, slightly above bitcoin’s 60% return, returns have since taken a nosedive. Bitcoin traded at $65,481 last November, but it was trading at $29,421 last week and at $30,491 by midday Wednesday.