Cayman most popular domicile for crypto funds

The Cayman Islands and the United States remained the top two jurisdictions for crypto hedge funds last year, despite losing market share.

About 34% of hedge funds are registered in Cayman, down from 42% in 2019, according to PwC’s and Elwood Asset Management’s third annual Global Crypto Hedge Fund report.

Compared to the previous year, Gibraltar has overtaken the British Virgin Islands and Luxembourg to rank third with 9% of registered funds, trailing the US (33%).

Most crypto fund managers are based in the US, the UK and Hong Kong.

However, 8% of managers are operating from Cayman, the report found.

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“We would expect this to remain mostly constant unless we see particular governments or authorities come up with policies to try and attract such fund managers to their jurisdictions,” the authors of the report wrote.

The report estimates that total assets under management (AuM) increased to US$3.8 billion in 2020 from $2 billion the previous year.

The percentage of crypto funds with AuM of more than $20 million increased in 2020 from 35% to 46%, as the median fund returned 128% compared with 30% in 2019.

Most crypto funds (92%) traded in Bitcoin, Ethereum (67%), Litecoin (34%), Chainlink (LINK, 30%), Polkadot (DOT, 28%) and Aave (27%).

More than half of crypto fund investors are high-net-worth individuals and a third are family offices.

“We expect inflows into crypto hedge funds to continue to increase over the coming months as more and more institutional investors decide to allocate to this fast growing space,” said Henri Arslanian, PwC crypto leader, in a press release. “For many institutional investors, an allocation to a crypto hedge fund is the natural first step of their crypto journey as it allows them to observe and learn about the asset class via a vehicle and structure they are familiar and comfortable with.”

In this year’s report, the Alternative Investment Management Association contributed a survey of 39 traditional hedge funds with $180 billion in AuM and their exposure to digital assets.

About 21% of hedge funds said they invested in digital assets. For the vast majority, crypto investment represented less than 2% of total assets under management. But 86% of funds that already invest in crypto said they intend to deploy more capital into the asset class by the end of the year.

However, regulatory uncertainty is considered by 82% the greatest barrier to investing and even half of the funds that already invest in digital assets say it is a challenge. For many respondents, the asset class still poses reputational risks and two-thirds stated that digital assets are currently outside their investment mandate.

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