Crypto Interest Surges Among Big Investors

Forty-one percent of alternative investment allocators in a new survey said they expect their firms to increase allocations to cryptocurrencies and other digital assets this year, a huge increase from the 12% who said this in 2021, Seward & Kissel, a law firm, reported Monday.

In addition, 48% of participants said their organizations do not invest in digital assets, down from 69% in 2021.

"While the increase in interest year-over-year by investors for digital assets is dramatic, as outlined in the survey, we are not surprised by these findings as many of our existing clients have expressed interest in exposure to digital assets, either as a direct investment in cryptocurrencies or as private investments in the digital asset ecosystem," Daniel Bresler, an investment management partner at the law firm, said in a statement.

Seward & Kissel distributed the survey to personnel who work at various types of investment allocators, irrespective of location or the amount of investable assets: 33% high-net-worth individuals/family offices; 27% funds of funds; and 10% each endowments, foundation and nonprofits, investment consultants and seeders.

Allocation Decisions

Of the different methods that allocators use to invest client dollars, direct fund investments remained the most popular in the new survey, with 93% of respondents allocating directly into a commingled fund, up from 86% in 2021.

This year as well, co-investment vehicles, including special purpose vehicles, surged, with 38% of participants using them, compared with 28% last year.

The survey found that investors continue to allocate to emerging managers. Seventy-three percent of participants said their organizations invest in alternative investment managers founded less than two years ago, down from 80% who said this last year.

The findings showed that allocators' interest in illiquid strategies last year continued in the new survey. Besides feeding the appetite for digital assets, 44% of survey participants said they expected their organizations to increase allocations to infrastructure and 41% to private equity strategies.

And some 30% of respondents said private debt, private equity real estate and equity hedge funds are areas of increasing allocations this year.

Investment Process

Across all asset classes, the survey showed that allocators are focused on operational due diligence, with 72% ranking background checks and references as very important in conducting their business.

Forty-five percent of respondents equally identified regulatory and compliance programs and service providers as very important, followed by 38% who cited firm infrastructure and 35% who said middle- and back-office operations and reporting.

The survey found that 93% of participants consider investment process the most important consideration when their firms source managers for allocations. Forty-one percent said performance is most important, 28% cited pedigree and 21% said length of a manager's track record.

Sixty-two percent of allocators in the survey said that when they negotiate side letters, they are most interested in favorable fees. Some 40% said they negotiate for most-favored-nation clauses, co-investment rights and transparency/reporting rights.