Michel Lee, Executive President at HashKey Group, explains that the role of digital assets within portfolios, either for returns or for diversification, is dependent on the type of institution. Lee draws on 25 years of experience with global investment banking giant UBS. “The goal of family offices is long-term capital preservation and long-term tracking, to make sure they don’t miss out on the big upside,” he shares.

“Smaller hedge funds tend to be more trading- oriented and are looking for market alphas.
In a more liquid and volatile market, if you’re smart and if you’re a fast mover, you can generate profits. That’s what’s potentially attractive to these smaller hedge funds. Historically, they have been more aggressive and more active than larger funds.”

“Larger hedge funds have been interested but slower to move due to two key factors. Firstly, obstacles such as the regulatory burden or compliance department advice, and, secondly, huge funds allocating very little money can’t really justify the cost of investing. However, we do now see bigger hedge funds coming in.”

Lee says that many investors entering into digital assets still buy Bitcoin and other virtual.

“Buying and holding Bitcoin is actually quite tricky if you’re an asset manager because many traditional custodians and fund administrators are not currently set up to handle such assets. So using futures as a proxy for a virtual currency holding has become popular,” he says.

“A family office that doesn’t want to miss out will probably go through the process and will open an account with a provider, such as HashKey Group. Some smaller hedge funds may also do that, but generally not the larger funds.

“However, traditional institutional investors, such as big university endowment funds,
are coming into this space through direct investment into private equity projects, or token projects, or into funds. They are not going to go and trade Bitcoin themselves. They want to go out and look for specialists in the area, and then allocate money to these specialists to manage.”

Lee points to the development of blockchain technologies in enabling greater access to digital assets. “Blockchain applications will enable various more assets to come online, a lot more. Digital Currency Electronic Payment (DCEP) technology coming online makes it a lot easier to transact many different assets that will be native to blockchain. Yes, existing stocks and bonds can be shifted to blockchain, but they are already well-served by traditional financing. Now there will be many other assets that come online.”