Crypto investments are increasingly finding a place in traditional hedge funds, with almost half disclosing exposure to digital assets, a survey showed.
The "6th Annual Global Crypto Hedge Fund Report," detailing findings from a survey by the Alternative Investment Management Association and PricewaterhouseCoopers, showed that 47% of traditional hedge funds now have exposure to digital assets, up from 29% in 2023 and 37% in 2022. The rise was attributed to increased regulatory clarity and the launch of spot cryptocurrency ETFs in Asia and the U.S., the report said, adding that, in short, “traditional hedge funds are returning to digital asset investing after last year’s drop-off, and they are doing so in increasingly sophisticated ways.”
More sophisticated investment strategies include a “notable shift” to derivative trading in digital assets by traditional hedge funds, rising to 58% from 38% last year. Spot trading dropped to 25% after a peak of 69% in 2023. The shift “signals growing sophistication in hedge fund strategies,” the report said.
Fund tokenization is also taking off, with 33% of hedge fund respondents committed to or exploring tokenization. Last year that figure was around 25%. For hedge funds that are focused on digital assets, 12% are already investing in tokenized assets, but regulatory challenges remain a hurdle to adoption.
There’s also increasing institutional client demand, according to 43% of traditional hedge fund respondents, although the report highlighted family offices and wealthy individuals as where the highest levels of interest in digital asset-focused hedge funds lie. That’s followed by funds of funds, the report said.
Among hedge funds already invested in digital assets, 67% plan to maintain the same level of capital, while the remaining 33% plan to invest more by the end of this year.
Despite growth, however, many traditional hedge-fund managers remain hesitant in adding digital assets exposure, with 76% of those not currently invested in crypto unlikely to enter within the next three years, up from 54% of respondents in 2023. Thirty-eight percent of funds said the exclusion of digital assets from investment mandates was the top barrier to entry, up from fourth place in last year’s survey. Regulatory uncertainty remains a key concern, although that’s eased due to the adoption of clearer regulatory frameworks, the report said, citing the European Union’s Markets in Crypto-Assets regulation.
The findings from this year’s report indicate a steady recovery in confidence over the past year,” said James Delaney, managing director, asset management regulation at AIMA, in a news release accompanying the report. “Institutional investors are showing renewed interest, driven by several key factors including increased regulatory clarity, such as the European Union’s MiCA (Markets in Crypto-Assets) regulation, advancements in infrastructure, and the approval of new products like spot bitcoin and ether ETFs by the U.S. Securities and Exchange Commission. There’s also growing attention on the longer-term use of blockchain technology — or tokenization — to support efficiencies within asset management. At AIMA, we continue to support the institutionalization of this rapidly evolving asset class through advocacy, operational guidance, and educational initiatives.”
The survey was conducted among 100 traditional and digital-asset focused hedge funds across the globe, with an estimated total assets under management of $124.5 billion. The report defined a digital asset-focused hedge fund as one that has at least 50% of AUM invested in crypto assets. Data from crypto index funds and crypto venture capital funds was excluded.
The report is available for download on AIMA’s website.