Hedge funds are wading further into cryptoassets, according to a new survey from PricewaterhouseCoopers LLP (PwC) and the Alternative Investment Management Association (AIMA).
In a report based on research collected in the first quarter, PwC said that 38% of traditional hedge funds are now investing in digital assets, up from 21% a year ago.
Additionally, the number of dedicated crypto funds is also growing, and is now estimated at over 300 funds.
Assets under management (AUM) for the crypto hedge funds surveyed was US$4.1 billion, up by 8% from the previous year.
Most traditional hedge funds (57%) have less than 1% of their AUM in crypto, the survey found, but 20% of them had larger allocations (between 5% and 50% of AUM), it noted.
Of the traditional funds that aren’t in crypto yet, the survey indicated that 29% are looking to get into crypto, 41% said that they are unlikely to get involved with crypto over the next three years, and 31% said they are “curious” but are waiting for the asset class to mature further.
Indeed, the report noted that regulatory uncertainty in the crypto space is a key issue for hedge funds, regardless of whether they already invest in digital assets or not.
“In the traditional hedge fund space, managers point to a number of market infrastructure areas in need of improvements for digital asset adoption, led by audit and accounting [94%], and also including risk management and compliance (93%), ability to use digital assets as collateral (93%) and fund administration (89%),” the report said.
Nonetheless, the hedge fund sector is expected to continue adding exposure.
“The recent collapse of Terra vividly demonstrated the potential risks in digital assets. There will continue to be volatility, but the market is maturing and with that is coming not only many more crypto-focused hedge funds and higher AUM, but also more traditional funds entering the crypto space,” said John Garvey, global financial services leader with PwC.