Asian Institutions Are Finally Warming to Crypto Hedge Funds

Asian institutional investors, mostly high-net-worth individuals and family offices, are increasingly showing interest in digital assets, with some having allocated part of their portfolios to crypto hedge funds.

Crypto hedge funds in the region face hurdles to getting off the ground, including licensing, banking, custody and insurance.

Asian institutional investors, mostly high-net-worth individuals and family offices unfamiliar with digital assets, are increasingly showing interest in allocating a small portion of their portfolios to crypto hedge funds.

Tiantian Kullander, co-founder of Asian crypto trading firm Amber Group, echoed that sentiment.

Around five percent of global crypto hedge funds are located in Singapore, compared to 64 percent in the United States, according to a 2019 research report by consulting firm PwC. These funds are structured much like traditional hedge funds, leveraging strategies such as quantitative trading, arbitrage, long-only and long-short, and aiming to generate alpha, or above-market returns, for institutional investors.

Investors can either purchase crypto assets directly or do so via a trustee, said Kenneth Xu, CEO of Hong Kong-registered crypto custodian InVault Trust.

Point95 Global, another crypto hedge fund based in Hong Kong, has also begun preparation since spring in 2018 and is currently perfecting internal processes with plans to raise external capital in 2020.

For the believers in institutional adoption, getting ready before institutions deploy capital to crypto en masse provides a first-mover advantage.

It's difficult to predict what will happen in regulated crypto funds in the next three years, or even the next year, said BBShare's Li. "This market moves so quickly. But we are very bullish on crypto's long-term potential and our fund's value proposition."

Others are thinking about creating intermediate products such as managed accounts since the cost of setting up and operating a licensed crypto hedge fund is very high.