New research from Nickel Digital Asset Management, a European regulated digital assets investment manager, reveals 25 per cent of professional investors see the appetite for risk from pension funds and other institutional investors increasing dramatically over the next two years. A further 47 per cent believe there will be a slight rise, and only nine per cent think there will be a fall in their risk appetite.
Institutional investors and wealth managers from the US, UK, France, Germany, and the UAE who collectively have $275.5 billion in assets under management were surveyed. The main reason why they see institutional investors taking on more risk is economic and fiscal policies from governments will ensure riskier asset classes will remain attractive. This is the view of 62 per cent. This was followed by 50 per cent who said it is because there will be strong economic growth as we come out of the COVID-19 induced economic crisis. One in three of those interviewed said low returns on bonds and cash mean investors will be prepared to take on more risk to meet their income and growth targets.
Stronger transparency and regulation around cryptocurrencies and other digital assets were also cited by 29 per cent of professional investors interviewed as a reason for institutional investors being prepared to take on more risk, and 15 per cent said this about other riskier asset classes such as hedge funds.
“A combination of poor returns on bonds and cash, favourable economic and fiscal policies, and greater transparency and regulation in the investment management world is fuelling a growing appetite for risk amongst institutional investors,” said Anatoly Crachilov, co-founder and CEO of Nickel Digital. “However, to capitalize on this, fund managers focusing on riskier asset classes need to ensure the highest levels of risk management, transparency and reporting to help ensure that pension funds and other institutional investors remain within their risk parameters.”
Crachilov recommended his clients limit their directional exposure to crypto assets to at most three per cent of their overall portfolio. He said that is a good number to both protect from excessive risk while also providing exposure to a growing asset class.
Nickel has four funds investing in the digital asset space. Its market-neutral Digital Asset Arbitrage Fund pursues an absolute return strategy without expressing directional views on the underlying cryptoassets market. Nickel said it exploits market inefficiencies and price dislocations and harnesses swings of volatility to deliver consistent positive returns within a strictly defined risk management framework.
Diversified Alpha Fund is a non-directional multi-strategy multi-manager fund that blends a portfolio of hard-to-access and capacity-constrained strategies into a single, investible fund. Among the strategies it deploys are high-frequency market-making, statistical arbitrage, relative value, volatility arbitrage, and trend following.
DeFi Liquid Venture Fund is designed to capture the growth potential of the broader digital assets space outside Bitcoin, capturing companies working with Layer 1 protocols and DeFi. The fund is an actively managed research-driven vehicle aiming at identifying early winners and capturing the structural expansion of this space.
Nickel’s Digital Gold Institutional Fund, a Bitcoin tracker, provides liquid access to physically allocated Bitcoin.