PwC Crypto Hedge Fund Overview - 2022
In June 2022, PwC published their 4th Annual Crypto Hedge Fund Review which provides a useful summary of where and how crypto hedge funds are operating.
Where…
The Cayman Islands is the jurisdiction of choice for crypto hedge funds with 49% domiciling in Cayman followed by 13% in the British Virgin Islands and 10% in the United States. Choices driving jurisdiction of choice were whether the country was “crypto friendly” and the presence of existing fund regulations.
The Cayman Islands is the world’s leading offshore hedge fund jurisdiction because of its tax advantages and sophisticated financial services sector which has well-developed connections to all the major international financial centers.
It is perhaps unsurprising that Cayman’s mature funds industry coupled with the introduction of “crypto friendly” regulations has meant it currently stands as the offshore jurisdiction of choice.
How…
Crypto hedge funds are largely using traditional fund structures with the following features:
Investors - High-Net Worth Individuals are the most common type of investor with average investments of about $1.6m. Funds have an average of 30 investors (median average).
Fees - management and performance fees remain high when compared to traditional funds with a 2.2% average management fee and 21.6% average performance fee.
Strategies - there were 4 major strategies promoted by crypto funds. Market neutral (30%), quantitative long/short (25%), discretionary long (14%) and discretionary long/short (12%). The remaining strategies were a combination of the above strategies.
Independent directors - in 2021 the percentage of funds appointing independent directors increased from 38% to 51% which was driven by the desire for better corporate governance and the availability of independent directors with crypto experience.
Cryptocurrencies - there was a reduction of Bitcoin holdings with only 29% of funds holding more than 50% of their assets in Bitcoin compared with 56% of funds in 2020. This was undoubtedly caused by funds pursuing altcoin strategies which is likely to rebalanced following the collapse of Luna and restructuring of Celsius.
In our opinion, the crypto hedge fund industry is poised to grow as institutions start to implement strategies and develop services to enhance the crypto industry. Cayman’s familiarity and existing relationships with these institutions will undoubtedly make the Cayman Islands a front runner in which to establish a crypto fund.