Investment

Family offices and the wealthy provide most of the capital for cryptocurrency hedge funds

It has emerged that family offices and wealthy investors provided most of the capital applied by cryptocurrency hedge funds to generate stunning returns of 128% in 2020, according to a survey.

Family offices accounted for 30% of their subscribers and high-net-worth subscribers invested 54%, just as they were the initial backers to the broader hedge fund movement of the 1970s. The next highest category of crypto investor – funds of funds – only accounted for 4%. Institutions were scarcely visible, possibly because of the small size of the movement, where the median fund size was $15 million.

There were, however,  signs of weaker governance and a number of crypto hedge funds lacked financial substance, which could cause problems further out. 

According to the survey, carried out by PwC and Elwood Asset Management, median returns were 128%, against 30% in 2019, with long-only, assisted by leverage, offering gains of 294%. Discretionary long/short came second with a median 129%. Multi-strategy generated 114%.

Total assets nearly doubled from $2 billion to $3.8 billion during 2020, although this total remained small. Launches increased by a factor of fifteen, closely correlated to periods of strong bitcoin performance. Around 27% of crypto funds used leverage, against 19% in 2019. 

More worrying, 2020 saw a fall in the proportion of crypto funds with at least one independent director to 38% of the total against 43% in 2020.  PwC thinks this could relate to clients becoming more forgiving during a year of turbocharged performance. 

Investors are also tolerating a rise in lock-up periods across 31% of funds, where clients are restricted in their ability to withdraw funds. A majority of funds also have the ability to impose gates restricting the speed of withdrawals in a crisis.

Short selling fell back over the year, although the use of derivatives increased to 56% of the total. Bitcoin was easily most frequently traded, with 92% of crypto hedge funds involved. Traditional hedge funds only invested 3% of their portfolio in digital assets, but say they will invest more this year.

Around 43% of crypto hedge funds are based in the US. The UK came second with 19%. 

The median hedge fund size was $15 millon, a level of capital viewed by PwC as unlikely to generate a profit much better than break even. Some hedge fund partners have decided to sell stakes in their business to third parties to raise funds.

Elsewhere, decentralised finance (DeFi) seeks to provide peer-to-peer loans outside the banking system.  In the year to April 2021, the trading volume on these platforms rose 90-fold. Uniswap, founded in 2018, accounted for half DeFi market volume in April 2021, ahead of its nearest rivals, 1inch and SushiSwap. 

Subscribe

You will need a Premium Plus Subscription to access this database.

Exclusive news, analysis and research on global family enterprise and private investment offices.

Access to the most comprehensive fully interactive database on global family offices, principal investment offices, and family enterprises.

Check Deal Data, Senior Staff, and New Analysis on more than 500 family/principal investment and holding groups

Already have an account? Login

Subscribe

You need at least a Premium Subscription to read this article.

The most comprehensive information service on the global family enterprise world, featuring exclusive news, analysis, research and data on global family enterprises, family offices, and private investment offices.

Premium

£299

per year

  • Exclusive reports, analysis and commentary
  • Exclusive access to family/private investment office deal information
  • Exclusive interviews with principals and senior management of family/investment offices
SUBSCRIBE NOW

Premium+

£399

per year

  • Access to All of Premium
  • Access to all of FamilyCapital Analytics, our interactive database with more than 500 detailed profiles of family investment groups

More Info

SUBSCRIBE NOW

Already have an account? Login

You've reached the end.

Continue reading free articles by registering as a Member.
Or choose a Premium Plan.

Membership

Free

  • Exclusive reports, analysis and commentary
REGISTER NOW

Premium

£299

per year

  • Exclusive reports, analysis and commentary
  • Exclusive access to family/private investment office deal information
  • Exclusive interviews with principals and senior management of family/investment offices
SUBSCRIBE NOW

Premium+

£399

per year

  • Access to All of Premium
  • Access to all of FamilyCapital Analytics, our interactive database with more than 500 detailed profiles of family investment groups

More Info

SUBSCRIBE NOW

Already have an account? Login

Leave a Reply