Australian super funds still wary of crypto as APAC family office interest surges
The past 12 months have been a defining period for cryptocurrency, with approximately $2 trillion wiped off the value of the digital asset market following the dazzling highs it attained in 2021.
Despite the chill of the so-called "crypto winter", nearly one-quarter of Australia's population would like their superannuation funds to include crypto, according to a recently published survey by Swyftx.
Although the value of cryptocurrency assets inside Australian self-managed superannuation funds increased by around $742 million (A$1.17 billion ) between June 2019 and June 2022, according to Australian Taxation Office statistics, larger Australian superannuation funds remain absent from crypto markets.
“We recognise that many people have been considering cryptocurrencies for investment, however we're looking at this more broadly – beyond simply investing in a digital currency like Bitcoin,” a spokesperson for Rest Super told AsianInvestor.
“We’re interested in the wider impacts of blockchain technology and its role as a disruptor," the spokesperson said. "We continue to assess how these assets and their supporting technology are performing, and the role they may play in our long-term investment strategy.”
State Super chief executive John Livanas told AsianInvestor that his fund does not invest in cryptocurrency due to the challenges presented by the emerging asset class, and that the fund’s members have not been asking for exposure to it.
“Apart from crypto having no intrinsic value – it isn't a fiat currency backed by a government that can be taxed – why would we invest in it?” he said.
State Super is also examining the uses of the underlying blockchain technology, and Livanas said he understands interest in the concept of distributing property rights through non-fungible tokens (NFTs). He said, however, that the tokens are not yet living up to the hype they have generated.
“Are you really, truly going to be able to put a contract on an NFT, with absolute legal clarity? Right now, I just don't know,” he said.
FAMILY OFFICE FORAYS
Despite the hesitation shown by Australian super funds, family office investors in the country have been venturing deeper into the crypto scene.
Melbourne-based Victor Smorgon Group, whose assets under management are estimated to be worth around $1.7 billion, has been very public about its interest in digital assets and novel technologies. In September last year, the family office took its first step into the space, purchasing an equity stake in crypto asset investment platform ZeroCap, which services a number of family offices and institutions.
“Family offices are looking for safety and security of their assets, firstly. Thus, institutional access points with bespoke insurances tend to attract the larger and more sophisticated family offices," Trent Barnes, chief innovation officer at ZeroCap, told AsianInvestor.
“Secondly, dependent on the family office's risk register, they're not necessarily looking for 50x or 100x returns, but more so steady, balanced returns. Thirdly, the patriarchs/matriarchs are also looking at the space as a way to engage with the next generation and get them involved in the family office business,” he said.
In Barnes’ experience, Australian family offices investing in the space tend to be more drawn to funds and to structured products to access yield.
“Beyond these products, the second type of investments they're looking for is direct exposure to coins/tokens with a view to a long-term hold," he said. "Some family offices have been getting more exposure to NFTs and making purchases as a means to understand the NFT space better.”
Despite growing interest in digital assets among institutional investors, the volatile crypto market has this year presented challenges for family offices, Barnes said.
“A number of family offices that had crypto positions exited into fiat, held, and sat on the sidelines to make sense of the market. We then saw them enter back in a couple of months later with renewed confidence,” he said.
OUTSIZED RETURNS
More than nine in 10 Hong Kong- and Singapore-based family offices and high net worth individuals (HNWIs) are interested in digital assets, with 58% of family offices and HNWIs already investing and 34% planning to do so, according to a report published this week by Aspen Digital and KPMG China.
According to the survey, those investors are flocking to the sector due to its high upside potential (64%) and growing mainstream attention (35%).
“Since Bitcoin’s inception in 2009, digital assets have achieved outsized cumulative returns compared to gold and stocks,” Matthew Lam, head of research at Aspen Digital, told AsianInvestor.
“Diversified digital asset product offerings from institutions are another key driver for growing family offices' investment in the asset class," he said. "For instance, Fidelity International launching its Bitcoin ETP for professional investors in Hong Kong."
When considering digital asset investment, the key concerns for family offices are regulatory clarity (83%) and inconsistent valuations of digital assets (50%). However, regulators are continuing to provide greater clarity for investors, Lam said.
“For instance, the Hong Kong government issued a policy statement to develop a vibrant virtual asset ecosystem, and is exploring a few pilots in NFT issuance, tokenised green bonds and e-HKD,” he said.
“A new fundamental analysis framework is needed to screen digital asset investment opportunities, such as on-chain metrics. We expect a more mature research methodology to be developed to evaluate digital assets in the future.”
The research suggests that the investment outlook for family offices in the digital asset sector remained positive amid the market volatility this year.
“Our survey respondents addressed market volatility concerns by adopting market-neutral strategies and investing in stablecoins,” Lam said.
Overall, family offices in Hong Kong and Singapore remain most interested in “blue-chip” cryptocurrencies such as Bitcoin, Ethereum and USDC, he said.
“Ethereum is the one to watch post-Merge, and institutions are bullish on Ether over the long term, following its massive reduction in daily supply issuance,” Lam said, referring to an upgrade of the Ethereum network carried out in September.