|[May 09, 2022]|
Cryptocurrencies and other digital assets have rapidly emerged as an attractive asset class to those who allocate the investment dollars of large institutional investors. The 2022 Alternative Investment Allocator Survey, conducted by leading law firm Seward & Kissel LLP, found that 41% of participants anticipated that their firms would increase allocations to digital assets in 2022, more than triple the number from last year’s survey. The full survey is available here.
The second annual survey analyzes the views of individuals from pension funds, endowments, family offices, seeders, high-net-worth individuals, and other entities. Their increased interest in digital assets is reflected not only in their expectations for future allocations but also current holdings. Last year, nearly 70% of survey participants said they did not invest in digital assets; this year, that number was down to 48%.
Of the different methods that allocators use to invest funds, co-investment vehicles, including special purpose vehicles (SPVs), surged this year, with 38% of participants using them compared to 28% last year. Direct fund investments remained the most popular across all investor groups, with 93% of respondents allocating directly into a commingled fund, up from 86% last year.
The survey also found that investors continue to allocate to emerging managers. Nearly three-quarters (73%) of survey participants indicated that their organizations invest in alternative investment managers founded less than two years ago, representing an overwhelming majority.
Also consistent with 2021 is the appetite for illiquid strategies, which continued to draw significant allocation interest. Meanwhile, in addition to the growing interest in digital assets, large numbers of survey participants expected their organizations to increase allocations to infrastructure (44%) and private equity (41%) strtegies. Also selected by more than 30% of respondents as areas of increasing allocations were private debt, private equity real estate, and hedge fund (equities).
Other Key Findings Include:
- Across all asset classes, the survey showed that allocators are also focused on operational due diligence, with 72% ranking background checks and references as “very important” in conducting their business.
- Investment process, at 93%, was overwhelmingly the most important consideration of survey respondents when their organizations source managers for allocations.
- More than 60% of respondents cited favorable fees as the most commonly sought-after term when negotiating side letters, though most favored nations clauses (MFNs), co-investment rights, and transparency/reporting rights are also sought-after by more than 40% of participants.
Seward & Kissel Investment Management Group partner Steve Nadel, the lead author of Seward & Kissel’s 2022 Alternative Investment Allocator Survey:
“Seward & Kissel is committed to understanding the alternative investment industry, as shown once again by our second annual allocator survey, which revealed important trends impacting the industry and our clients.”
“Another important finding is the significant increase in co-investment vehicles and SPVs, which shows the continuing demand by investors for more bespoke offerings.”
Daniel Bresler, one of Seward & Kissel’s newest Investment Management partners, was unsurprised by the emergence of digital assets as an asset class. “While the increase in interest year-over-year by investors for digital assets is dramatic, as outlined in the survey, we are not surprised by these findings as many of our existing clients have expressed interest in exposure to digital assets, either as a direct investment in cryptocurrencies or as private investments in the digital asset ecosystem. We have seen this both through new, emerging managers and through offerings by existing advisers.”
Nadel and Bresler are available to speak to the media about Seward & Kissel’s 2022 Alternative Investment Allocator Survey. The survey methodology and full report are available online here.
About Seward & Kissel LLP
Seward & Kissel LLP, founded in 1890, is a leading U.S. law firm with an international reputation for excellence. The firm is particularly well known for its hedge fund and investment management work, having established the first hedge fund ever, A.W. Jones, in 1949, and having earned numerous best in class awards over the years. In addition, Preqin recently identified Seward & Kissel as the top U.S. law firm based on number of hedge funds serviced.
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