Both traditional hedge funds and crypto-focused managers have increased in number, according to PWC
Despite the sector's extreme volatility, more regular hedge funds are investing in crypto, and more specialist crypto funds are being established as the digital asset class gains popularity.
Traditional hedge funds are currently investing in digital assets at a rate of 38%, up from 21% a year ago, according to PwC's 4th Annual Global Crypto Hedge Fund Report 2022.
It projected that the number of specialist crypto hedge funds has surpassed 300 globally in the last two years, with the rate of new funds being launched increasing.
In 2021, total AUM of crypto hedge funds examined were US$4.1 billion, up 8% from the previous year.
Traditional hedge funds manage $436 billion in assets, with more than half of those managing above $1 billion. Cryptocurrencies, decentralized exchange-listed tokens, and non-fungible tokens are among the digital assets purchased by hedge fund managers, according to the Big 4 accounting firm.
Most traditional hedge funds that are wading into digital assets are simply getting their feet wet; 57% have less than 1% of their total AUM invested in digital assets.
Digital assets account for between 5% and 50% of AUM for 20% of these funds. Furthermore, by the end of 2022, two-thirds of funds (67%) presently investing in digital assets plan to increase their investments.
The recent market collapse does not appear to have dampened long-term crypto interest. According to PwC, 29% of hedge fund managers who are not investing in digital assets have verified that they are in the final stages of intending to do so.
Additionally, by the end of 2022, two-thirds of the funds presently investing in digital assets want to increase their capital allocation.
Multi-strategy funds (32%), macro funds (21%), and systematic funds (12% of which said they had exposure) are the hedge funds with the largest digital asset exposure.
According to PwC, family offices and high-net-worth people are at the vanguard of digital asset investment.
The survey found 86% of traditional hedge funds have high-net-worth and family office investors, whereas 66% of crypto hedge funds do.
While crypto hedge funds' median performance was 63.4%, slightly higher than bitcoin's 60%, returns have since plummeted. Last November, bitcoin was trading at $65,481, but it dropped down to $29,421 last week and $30,491 by lunchtime Wednesday.
John Garvey, Global Financial Services Leader, PwC United States, said: “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.”