Nearly half of institutional investors, such as pension funds, wealth management offices, sovereign wealth funds, etc. aren’t sold on cryptocurrency funds, at least not yet. This according to a report by alternative investment firm Context Capital Partners LP in which hundreds of investment officers were polled at a Miami conference over a three-day period leading up to Feb. 2.
Investment professionals have a fiduciary responsibility to vet any changes to asset allocation based on features such as fees, expected returns and risks. They need more time to make a call on the role of cryptocurrency funds, if any, in their members’ investment portfolios.
A little more than one-quarter of those polled said cryptocurrencies are a “legitimate asset class,” while just about the same amount find any association with the category to be fraudulent. Forty-seven percent of those polled aren’t sure.
If bitcoin and other altcoins are to comprise more than a single-digit percentage of global GDP, institutional investors like pensions will likely have to begin directing greater percentages of their investment portfolios to the category, something that’s not expected to occur any time soon, according to the survey.
Where they intend to generate their returns is unclear, as more than two-thirds of those in charge of investments expect stocks and bonds in 2018 will trail 2017’s performance; approximately one-fifth of them expect returns to be flat year-over-year. The report suggests that investors looking for greater diversification are looking to cryptocurrencies as well as ESG strategies more and more, but only 11.2% of allocators will take the plunge into cryptocurrencies this year.
Meanwhile, the number of investment funds dedicated to cryptocurrencies skyrocketed last year versus 2016, rising more than eightfold to 160 funds, as per Autonomous Research cited in Bloomberg. But investment managers may be sidelined until policymakers make it clear what the regulatory framework surrounding cryptocurrencies and the exchanges on which they trade will be. Wall Street regulators have been cracking down on ICOs, funds and trading platforms, as evidenced by probes into digital token issuers and alternative investment funds like hedge funds, for instance.
Meanwhile, at year-end 2017, even before the bitcoin price peaked at record levels, researchers from Johns Hopkins University and the Maryland State Retirement and Pension System pointed to bitcoin’s “unique diversification benefits for traditional investment portfolios,” which they characterized as “stable” despite the price volatility. They concluded that “institutional investors are under-allocated to BTC” and recommend a 1.3% allocation.
On the other side of the spectrum, the chief of a Russian sovereign wealth fund told CNBC they while the fund would explore gaining exposure to the blockchain, they wouldn’t touch bitcoin because it’s a “bubble.”