Nearly half (47%) of hedge funds focused on traditional asset classes have now exposure to digital assets.
That number has jumped significantly from 29% in 2023 and 37% in 2022. The increase results from greater regulatory clarity and follows the introduction of spot currency exchange traded funds (ETFs) in the United States and Asia, according to the Global Crypto Hedge Fund Report published by the Alternative Investment Management Association (AIMA) and PwC.
The survey found two thirds (67%) of those already invested plan to maintain the same level of capital employed, while the remaining third aim to invest more capital by the end of 2024.
The survey of about 100 hedge funds shows that digital asset investment strategies have become more sophisticated. While funds initially focused on spot trading, peaking at 69% last year, this has dropped to 25%. Instead there has been a shift to derivative trading in digital assets, now at 58% up from 38% in 2023.
Interest in fund tokenisation is also growing. The report found that a third of hedge fund respondents said they would explore tokenisation compared with only a quarter last year. The main reason for the growing interest is the desire to facilitate liquidity (37%) and gain broader access to more investors (27%). However, regulatory challenges remain the biggest obstacle, the report said.
Among hedge funds focused on digital assets, 12% are already investing in tokenised assets, such as treasury securities.
Overall, 43% of hedge funds, regardless of whether they are invested in digital assets or not, are seeing growing interest from institutional clients in the asset class.
So far, family offices and high-net-worth individuals remain the largest investor categories in digital asset funds, followed by fund of funds.
Despite the growing exposure of alternative funds to digital assets, the global crypto hedge fund report noted that managers remain cautious.
Of those funds not currently invested in crypto, 76% said they are unlikely to enter the space next year, often because their investment mandates do not allow it (38%).
