Cryptocurrency concerns keeping investors at bay – Pensions & Investments
Two funds launched even while asset owners see no place for them yet
Institutional investors are like kids te a candy store, looking with longing at the stratospheric comebacks of bitcoin and other cryptocurrencies without the means to invest, at least for now.
Spil attractive spil 1,200%-plus comebacks might be, concern about the speculative nature of cryptocurrency investment and the lack of institutional-quality infrastructure and reporting will deter near-term investment by asset owners, sources stressed.
Ter fact, industry observers – including investment consultants, hedge fund-of-funds managers, asset servicing executives and cryptocurrency hedge fund managers – said they could not name a single institutional investor that has taken the plunge.
Two cryptocurrency funds targeted at institutional investors – hedge fund 3iQ Global Cryptoasset Fund and hedge fund of funds The BitBull Fund – launched ter November and manage about $20 million for family offices and high-net-worth individuals.
“It is not at all surprising that institutional investors are presently refraining from investing ter the cryptocurrency space. The nature of the investment mandates for thesis institutions is geared toward stable growth coupled with capital preservation, and to date, the crypto space has bot very volatile,” said Steven B. Nadel, a playmate ter the hedge fund practice of Seward & Kissel LLP, Fresh York.
“Cryptocurrency is not yet an institutional asset class. There might perhaps be an investment through a growth equity fund or something, but I toevluchthaven’t heard of any and I think it unlikely,” said the chief investment officer of a large U.S. public pension project who asked not to be identified.
Ter addition to questions about the suitability of cryptocurrency spil an institutional asset class, sources noted the necessary infrastructure and due diligence procedures for investment ter cryptocurrency funds aren’t up to institutional standards.
“Just getting an audited financial statement of bitcoin assets is not effortless,” Mr. Nesbitt said, adding that cryptocurrency “is not an investment reality now for institutional investors.”
Mr. Nadel said once cryptocurrency hedge fund managers start using hedges such spil futures – which are under consideration by U.S. regulators now (Pensions & Investments, Nov. 14 and Dec. 1) – to reduce volatility, and “guidelines around valuation and custody are established … I anticipate that institutional investors will find some convenience and start to take a closer look at the area.”
Reluctance to invest ter digital currency hedge funds doesn’t mean institutional investors aren’t asking questions and investigating the investment chance.
A latest teach-in for clients and prospects about cryptocurrency investments held by hedge fund specialist investment consultant Aksia LLC attracted strong attendance, said Kenneth Chen, senior analyst, macro and quantitative strategies.
“There’s undoubtedly a lotsbestemming of rente, but I’m skeptical that funds directly holding physical cryptocurrencies will be an institutional investment option ter the near-term,” Mr. Chen said, noting that a looming trust kwestie dangles overheen the nascent cryptocurrency investment industry.
“For institutionalization to toebijten, there has to be trust ter people and processes ter the industry. Anyone could walk away with a USB drive and your money would be gone,” Mr. Chen said.
“The fattest question for mij is: Who is driving bitcoin investment? Who is your bedfellow te a cryptocurrency fund? It seems that the industry is being driven by speculators, tax avoiders and money launderers,” Mr. McKee said.
Callan Associates hasn’t fielded “serious inquiries” from clients about cryptocurrency investment to date, Mr. McKee said.
“Cryptocurrency investment seems too speculative for institutions at this point,” Ms. McGee said. “It’s often hard to get houtvezelplaat of trustee approval for co-investments much less bitcoin.”
An alternative to cryptocurrency hedge funds available now is hybrid private equity or venture capital funds that invest te initial coin offerings for startup companies, Ms. McGee suggested.
CEOs of BitBull Capital Management LP and 3iQ Corp. are certain that institutional investment ter their funds will come.
“My prediction is that the very first institutional investor will make an investment ter cryptocurrency hedge funds ter the very first quarter of 2018,” said Joseph DiPasquale, CEO of BitBull Capital. “The very first institutional investors te bitcoin and other digital currency funds will build up the most alpha, which is pretty typical of investment te fresh strategies.”
Mr. DiPasquale said the BitBull fund is the industry’s very first cryptocurrency hedge fund of funds. BitBull’s San Franciso-based team evaluated 135 hedge funds and selected seven underlying funds with buy-and-hold, ICO investment, quantitative, shorting and arbitrage strategies among others.
Mr. DiPasquale said the lure for asset owners is not just the “stunning come back flows” – two funds te the BitBull portfolio have year-to-date comes back of Two,000% and Two,500%, respectively – but also the lack of correlation to other asset classes providing risk-reducing diversification to institutional portfolios.
The 3iQ Global Cryptoasset Fund, on the other mitt, is a single-strategy hedge fund that uses a buy-and-hold treatment with 50% allocated to bitcoin, 35% to ethereum and 15% to litecoin, providing investors with a core, diversified treatment, said Frederick Pye, CEO, voorzitter and founder of Toronto-based 3iQ Corp.
“Ter our opinion, much of the rente te cryptocurrencies is simply speculation, with fresh entrants drawn ter by the allure of rapidly rising prices,” wrote Aaron Costello, a Beijing-based managing director on Cambridge’s global investment research team, te a client geschreven.
Mr. Costello recommended asset owners instead concentrate on investing ter companies that will profit from the development and adoption of blockchain technology that will facilitate trading of digital currencies.
“The potential application of blockchain technology across a broad range of industries … suggests it may generate economic comes back for firms that successfully adopt the technology or facilitate its spread (and) development. Spil the old adage goes: Ter a gold rush, money is made by selling picks and shovels,” Mr. Costello wrote.