Crypto Hedge Fund AUM Doubles to $2 Billion in 2019

Cryptocurrency hedge funds had a strong year in 2019 as assets under management (AUM) doubled to $2 billion from $1 billion in 2018, while the average assets under management surged to $44 million from $21.9 million, according to a report from PwC and Elwood Asset Management Services.

The data from the report came from research conducted during the first quarter of the year among the largest global crypto hedge funds by assets under management. The report focuses on actively managed crypto hedge funds that invest or trade in liquid, public cryptocurrencies and other instruments, and excludes data from index, tracking, and passive crypto funds and crypto venture capital funds.

However, it’s important to note that the data, including performance data, was provided by the crypto hedge fund managers directly and has not been verified by an independent fund administrator or other third party.

According to the report, the median crypto hedge fund returned 30% last year compared with a loss of 46% in 2018. The top performing crypto hedge fund by strategy was discretionary long only, which had median returns of 40%, followed by discretionary long-short, which rose 33%; quantitative, which gained 30%; and multi-strategy, which increased 15%.

The report found that the most common crypto hedge fund strategy was quantitative, which accounted for 48% of funds, followed by discretionary long only (19%), discretionary long/short (17%), and multi-strategy (17%). The vast majority of crypto hedge funds trade Bitcoin (97%) followed by Ethereum (67%), XRP (38%), Litecoin (38%), Bitcoin Cash (31%) and EOS (25%). Approximately 56% of the hedge funds trade derivatives, while 48% are active short sellers.

The percentage of crypto hedge funds with assets of more than $20 million also increased in 2019, rising to 35% from 19%, while the median assets under management grew to $8.2 million from $4.3 million. The report also found that the median assets under management at fund launch is $2 million, indicating that funds have typically experienced a four-fold increase in assets under management in 2019.

The report also found that 90% of investors in crypto hedge funds are either family offices (48%) or high-net worth individuals (42%). The median investment size was $300,000, while the average investment size was $3.1 million. Crypto hedge funds also reported a median of 28 investors.

Median management and performance fees remained unchanged at 2% and 20% respectively, although the average management fee increased to 2.3% from 1.7%, while the average performance fee decreased to 21.1% from 23.5%.

Although the average size of investment teams increased only slightly to 8.7 people from 7.5, the average years of investment management experience has more than doubled to 50 from 24.

“This suggests that an increasing number of experienced investment professionals are entering the crypto space, leading to financially savvier crypto fund teams,” according to the report. However, it also said this could also be due to what the report refers to as “survivor bias,” as it is possible that the crypto funds that closed during the previous year had a higher proportion of junior staff. Regardless, the report said it expects to see experienced finance professionals enter the crypto space as the industry evolves and matures.

“An investment team with ‘traditional’ asset management experience will likely give investors and regulators greater comfort that the fund is being managed in a professional and compliant manner,” the report said.