Key Takeaways
- • Crypto hedge funds tracked by Crypto Fund Research (CFR) recorded net outflows of $64.4 million in Q3 2023, bringing year-to-date net outflows to $676 million, even though the asset class returned 17.7% year-to-date through September.
- • The CFR index, which tracks more than 270 funds, fell 5.48% in Q3 while Bitcoin declined 11.28% in the same period.
- • A Goldman Sachs family office survey found crypto investment rose to 26% from 16% in 2021, but the share with no interest in crypto jumped from 39% to 62%.
- • Diamond Wealth founder Ronald Diamond said FTX's collapse was a turning point, as failures damaged family offices' trust in the asset class.
- • CFR founder Joshua Gnaizda said family offices are likely among redeeming investors, and that institutional conversations on crypto allocations have shifted over the past several months.
Summary
Crypto hedge funds have outperformed year to date yet continue to face redemptions, according to data from Crypto Fund Research (CFR), which tracks the monthly returns and assets of more than 270 funds. The CFR crypto hedge fund index declined 5.48% in the third quarter, while Bitcoin fell 11.28%. Through September, however, the asset class returned 17.7% and Bitcoin was up 63% for the year.
Despite the year-to-date gains, tracked funds recorded net outflows of $64.4 million in the third quarter, bringing 2023 net outflows to $676 million. CFR notes that the funds it tracks average only $10 million in assets, and that total assets under management across the group hover between $1 billion and $3 billion. To qualify for tracking, at least half of a fund's assets must be in cryptocurrencies.
Family offices appear to be contributing to the outflows. A Goldman Sachs survey of family offices early this year found that 26% were invested in crypto, up from 16% in 2021. Enthusiasm has nonetheless declined sharply following a series of scams and business failures, including FTX, with the share of respondents expressing no interest in crypto rising from 39% to 62%.
Ronald Diamond, founder of Diamond Wealth, which helps more than 100 family offices with assets ranging from $250 million to $30 billion invest in private markets, described FTX as a turning point. He said family offices begin their due diligence by asking whether they can trust an asset manager, and that once trust is damaged, families have many other options. "If the asset class is performing well, why would you pull out of it?" Diamond said.
CFR does not have investor-level data. Joshua Gnaizda, CFR's founder, said redemptions appear relatively small and spread across funds, and that it is plausible a significant portion comes from family offices. He added that the conversation around crypto has changed, noting that a small, highly risky allocation may have been justifiable when returns were up 500% a few years ago, but that institutional discussions have shifted in recent months. "It might be just everyone kind of hitting the pause button at the moment," Gnaizda said.
Despite the year-to-date gains, tracked funds recorded net outflows of $64.4 million in the third quarter, bringing 2023 net outflows to $676 million. CFR notes that the funds it tracks average only $10 million in assets, and that total assets under management across the group hover between $1 billion and $3 billion. To qualify for tracking, at least half of a fund's assets must be in cryptocurrencies.
Family offices appear to be contributing to the outflows. A Goldman Sachs survey of family offices early this year found that 26% were invested in crypto, up from 16% in 2021. Enthusiasm has nonetheless declined sharply following a series of scams and business failures, including FTX, with the share of respondents expressing no interest in crypto rising from 39% to 62%.
Ronald Diamond, founder of Diamond Wealth, which helps more than 100 family offices with assets ranging from $250 million to $30 billion invest in private markets, described FTX as a turning point. He said family offices begin their due diligence by asking whether they can trust an asset manager, and that once trust is damaged, families have many other options. "If the asset class is performing well, why would you pull out of it?" Diamond said.
CFR does not have investor-level data. Joshua Gnaizda, CFR's founder, said redemptions appear relatively small and spread across funds, and that it is plausible a significant portion comes from family offices. He added that the conversation around crypto has changed, noting that a small, highly risky allocation may have been justifiable when returns were up 500% a few years ago, but that institutional discussions have shifted in recent months. "It might be just everyone kind of hitting the pause button at the moment," Gnaizda said.
Go deeper than the headline
Research every firm in this story, track the ones that matter and get the daily briefing — free for 7 days.