Family offices look to increase and diversify their crypto allocations
Cryptocurrencies and digital assets continue to gain traction with family office investors as stores of wealth, effective portfolio diversifiers, and potential sources of alpha. But volatility, lack of regulation, and other challenges still surround the asset class, panelists said at the Family Office Digital Assets Exchange held by AsianInvestor on Thursday, December 9.
After going through the cryptocurrency market crash of 2018 but ultimately weathering the crypto winter to turn a profit in their early Bitcoin investment, Tuck Meng Yee, founder and chief investment officer for Singapore-based JRT partners, said his firm now sees a lot of upside in the digital assets sector— but added that investors must be prepared for the volatility.
“This is still very much a frontier market, just less frontier over the last seven years or so,” said Tuck.
“The space is clearly, in my perspective, at the tipping point of going from early adoption to mass adoption,” said Iu-Jin Ong, chief executive officer and executive director at Ambitum Capital Limited, a Hong Kong-based single-family office that took very early exposure in the cryptocurrency space with Bitcoin and Ethereum.
“We aim to diversify some of our experience and our exposure in the core cryptocurrencies into other things and reallocate within the space,” said Ong on the growing diversity in investment opportunities, including altcoins, non-fungible tokens (NFTs), and stablecoins.
CHANGING LANDSCAPE
A recent survey from Natixis investment managers found that institutional investors around the world are growing more accepting of digital assets — with 40% of 500 respondents calling them a legitimate investment opportunity, and 28% already investing in cryptocurrencies.
For years, family offices and high net worth investors mainly made long directional plays in cryptocurrencies, such as buying Bitcoin and Ethereum and holding the assets through bouts of volatility for profits.
Timothy Tsui, chief investment officer of Hong Kong-based multi-family office Arbutus Capital Partners, said his firm had originally made such a play when entering the crypto market in 2017, but were now looking more into “arbitrage strategies.”
“We are currently doing our due diligence on two managers based in Hong Kong that are running such strategies and trying to see if there can be some investment returns generated without taking such high volatility, or in a more market-neutral type of way, in an arbitrage strategy,” Tsui said, adding that his firm is seriously considering allocating some capital to these firms to diversify its exposure.
Takatoshi Shibayama, head of sales in Apac for Copper, a crypto prime brokerage and custodial service, agreed that there has historically been a lack of alternatives to taking a long position in crypto, particularly in an investor’s ability to hedge their risk. An increase in products — such as futures, options, perpetual swaps, and derivatives — which began in 2017, has allowed more sophisticated institutional investors to enter the digital assets space.
“There are even funds that are dedicated to investing in the DeFi (decentralized finance) space. More recently, we have started to see people investing in the NFT (non-fungible token) space,” said Shibayama.
“This market has become very diversified in terms of the capital that has been allocated,” he added.
INCREASED ALLOCATION
Beyond the volatility, institutional investment into digital assets has been held at bay due to three main stumbling blocks: technological understanding, the infrastructure available for trading crypto assets, and regulation. But those standards are improving, particularly in terms of regulation, according to Tuck.
But Tuck highlighted the acceptance of the industry in countries like Australia and Singapore, whose governments are now focusing on regulation rather than bans.
“That means there's a massive line of ventures applying for crypto payment licenses. And in terms of investment channels you're getting more and more traditional fund managers coming into that space. For example, Brevan Howard, a quality hedge fund, just announced a launch of a multi-strategy crypto fund,” said Tuck. “When you have something like that, then you’re going to get more and more investor money, going through such vehicles.”
He also highlighted developments in Singapore, such as DBS bank launching its own institutional crypto exchange to compete with crypto-native platforms.
Arbutus Capital’s Tsui believes, after having conversations with various family offices, that allocations to and interest in digital assets are only going to increase.
“Family offices are getting more and more interested in this space, at least here in Hong Kong, and they're looking to allocate more either in the actual cryptocurrencies themselves, or in professionally run investment strategies within the crypto space,” said Tsui. “We’re also seeing more family offices investing directly in blockchain-related technology companies, as well as NFTs.”
“So I think interest is only going to grow, and I really do hope that larger institutions in Apac and globally also take more interest in this area, and take a look at the crypto industry very, very seriously.”