Michelle Noyes, CAIA, Head of Americas for AIMA, joined Keith Black, Managing Director of RIA Channel, to discuss the growth of hedge fund investments in digital assets.
The Alternative Investment Management Association (AIMA) is the global voice for the alternative investments industry. Founded in 1990 to serve the hedge fund and managed futures community, AIMA serves an educational role for the industry and provided the first standardized due diligence questionnaire. Since the founding of AIMA, hedge funds have grown from a nascent industry to one with nearly $5 trillion in assets under management. AIMA started covering private credit in 2014 and digital assets in 2017.
Hedge funds have always been innovative, with many early-adopting crypto-focused hedge funds drawn in by the volatility and the arbitrage opportunities of digital assets. Traditional hedge funds started allocating to digital assets in 2020 and 2021. In 2021, AIMA started a digital asset working group (DAWG) charged with shaping regulation, forming standards, and building a crypto-focused due diligence questionnaire. The next wave of adoption may be on tokenized assets, including private credit and venture capital fund offerings.
Institutional investors were slow to adopt digital assets, even when members of the investment team had allocated personal assets to the space. They may have reached a turning point in their thinking in 2020 when Paul Tudor Jones disclosed that he was an investor in digital assets. Most institutional investors allocated to the space by investing in crypto-focused hedge funds and venture capital funds rather than investing in digital assets in the spot market. The recent launch of bitcoin and Ethereum ETFs provides access to digital assets without the complexity of decisions on the custody of assets purchased in the spot market.
In conjunction with PWC and Coinshares, AIMA produced the 5th Annual Global Crypto Hedge Fund Report in 2023. The survey details the crypto investments of both crypto-focused and TradFi hedge funds. 29% of surveyed TradFi hedge funds invest an average of 7% in digital assets. Recent 13F data shows many traditional hedge funds as large holders of bitcoin ETFs.
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