47% of Traditional Hedge Funds Have Digital Asset Exposure

The Alternative Investment Management Association and PwC have recently published their latest report, examining the growing role of digital assets within hedge fund investments. Now in its sixth year, the report reveals several key trends shaping the digital assets landscape for hedge funds.

The research indicates that nearly half (47%) of traditional hedge funds currently have exposure to digital assets, up from 29% in 2023. This increase is attributed to heightened regulatory clarity and the launch of cryptocurrency ETFs in markets like Asia and the U.S. Among those hedge funds already investing in digital assets, 67% plan to maintain their current investment levels, while 33% intend to increase their holdings by the end of 2024.

There is a marked shift toward the use of derivatives in digital asset trading, with 58% of traditional hedge funds now engaging in this practice, compared to 38% in 2023. This shift indicates a growing sophistication in investment strategies, as spot trading has decreased significantly to 25% this year from a peak of 69% last year. The report also highlights a rising interest in the tokenization of assets, with 33% of hedge fund respondents either committed to or exploring tokenization, a notable increase from around a quarter of traditional hedge funds last year. However, regulatory challenges continue to hinder broader adoption, even as some digital asset-focused hedge funds are already investing in tokenized assets.

Institutional client demand for digital assets is also on the rise, with 43% of traditional hedge funds reporting increased interest from institutional clients. Family offices and high-net-worth individuals remain the largest investor categories in digital asset-focused hedge funds, followed by funds of funds. Despite this growth, many hedge fund managers remain cautious; 76% of those not currently invested in digital assets do not plan to enter the space within the next three years, up from 54% in 2023. The primary barrier cited by 38% of funds is the exclusion of digital assets from investment mandates, a concern that has grown in importance.