Market Analysis

Traditional Hedge Funds Look To Deploy More Capital Into Crypto: PricewaterhouseCoopers

Global accounting and business consultancy firm PricewaterhouseCoopers (PwC) is revealing that legacy hedge funds are contemplating increasing their investments in crypto assets before the end of the year.

In the firm’s latest Crypto Hedge Fund Report, PwC says that a large majority of traditional hedge funds that have invested in cryptocurrencies plan to increase their allocation to the nascent sector before the end of the year.

“Around a fifth of hedge funds are investing in digital assets (21%); the average percentage of their total hedge fund AuM invested in digital assets is 3%. More than 85% of those hedge funds intend to deploy more capital into the asset class by the end of 2021.”

Traditional hedge funds that made investments in crypto have allocated about 3% of their assets under management, according to PwC.

PwC adds that 57.1% of non-crypto hedge funds invested in digital assets for general diversification purposes. About 29% of the funds are seeking “exposure to a new value-creation ecosystem.” Only 14% say they are looking for a hedge against inflation.

In addition, PwC highlights the hurdles that traditional hedge funds face as they consider investing in cryptocurrencies.

“In terms of the main obstacles to investing, regulatory uncertainty is by far the greatest barrier (82%). Even those who do invest in digital assets cite it as a major challenge (50%). Client reaction/reputational risk is high (77%) as well as digital assets being outside the scope of current investment mandates (68%). Over half of the respondents said that they don’t have enough knowledge of digital assets (64%).”

Per the PwC report, more than half of the hedge funds interviewed would initiate or increase their investments in crypto if these obstacles were eliminated.

“64% of respondents said that if the main barriers were to be removed, they would definitely start/accelerate their involvement/investment or potentially change their approach and become more involved.”

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