PWC Crypto Hedge Fund Report (Summary & Comments)

This is a brief post summarizing the recent report "2019 Crypto Hedge Fund Report" published by PWC Hong Kong and Elwood Asset Management Services.

Austin Hubbell

This is a brief post summarizing the recent report "2019 Crypto Hedge Fund Report" published by PWC Hong Kong and Elwood Asset Management Services.

State of the industry

  • Majority of crypto hedge funds are still small, over 60% have less than $10M AUM
  • Despite the relatively small AUM, median team size is still quite large (6 person median team size compared to $4.3M median AUM)
  • Crypto hedge funds are geographically distributed in the same regions used by funds in other asset classes (64% of management companies located in the US and 55% of the hedge funds are domiciled in the Cayman Islands)
  • Only 37% of funds surveyed are classified as "Quant" funds, although the median returns of this category of funds is significantly higher (see below)
  • Use of third-party research is extremely low, with only 7% of funds surveyed claiming to use third-party research as part of their investment process

A few key points highlighting the state of the crypto hedge fund industry:

Crypto Hedge Fund Performance

NOTE: This report uses the 2018 calendar year as the measurement period for all fund performance metrics, which was an extreme bear market by almost any definition. It's also worth noting that their definition of a "Fundamental" strategy is restricted to long-only positions.

A Brief Note on Short Positions
This report shows that 74% of the funds surveyed are permitted to take short positions (based on their private placement memorandum, PPM, documents). However it's likely that a much smaller percentage are actually able to properly execute a large short, as mentioned in the final pages of the report:

Although many of the discretionary fund managersM

say that they can take short positions and it is

permitted in their PPM documents, some of them

have never taken short positions and do not

anticipate doing so. In many cases, these funds have

not built the infrastructure and Over-The-Counter

(OTC) relationships in order to borrow

cryptocurrencies and put on short positions.

2018 Returns by Fund Category
Fundamental: 53%
Discretionary: 63%
Quantitative: 8%

The outperformance of the fundamental funds

relative to the discretionary funds in 2018 was due

to the fact that these funds had invested a larger

proportion of their assets into Initial Coin Offerings

(ICOs) and early stage projects.

While both Fundamental and Discretionary funds suffered huge losses overall, the funds that embraced Quantitative strategies were able to generate significant profits relative to both the price of bitcoin as well as their peers in the other fund categories. Also, note that the return curve for Quant funds is much smoother which may indicate more allocations to market-neutral strategies.

Custody & Governance

Custody is one of the most popular topics of discussion in the digital asset management industry (regardless of category of fund), and for good reasons. The nature of the public key/private key "ownership" mechanism of most digital assets makes them a prime target for hackers and bad actors. Once an individual or group has gained control of the private key associated with your funds, they are able to transfer/sell/restrict those assets in ways that are irreversible. For this reason, proper custody of assets under management has been one of the biggest concerns of managers, regulators and investors.

Only 52% of Funds use an External Custodian
According to this report, only 52% of funds surveyed actually use an external custodian to hold their assets. At first glance, this may seem like an astonishingly low number. However, there are many trading strategies that require funds to be predominantly held on exchanges, most of which are considered to be quantitative strategies (e.g. market making, arbitrage, HFT). Adjusting for the proportion of Quantitative Funds surveyed in the report (37%) leaves a mere 11% of Discretionary and Fundamental Funds that do not use an external custodian.

If your crypto fund trading strategy requires leaving

substantial assets at exchanges, having a proper

counterparty risk framework with constant

monitoring is key. This may involve strategies such

as using numerous exchanges, limiting the

maximum exposure to one exchange at any point

and conducting regular counterparty risk

assessments on these exchanges.

Only 25% of Funds have Independent Directors
Another important factor that institutional investors look for when allocating to external funds is the governance structure of the fund, and whether or not there are any independent directors on the board.

Having the portfolio managers also control the

board of the fund may work for ‘friends and family’

type funds, but it is unlikely that an institutional

investor will invest in a fund which does not have

proper governance.

Advantages of Quantitative Hedge Funds

Reminder: This is not investment advice, always do your own research.

Although this report focused on the 2018 calendar year for calculation of performance metrics, there were a few key points that eluded to the advantages that Quantitative Hedge Funds or "Quant" Funds have over Discretionary and Fundamental Funds:

  • Quant funds are typically more liquid overall, as a lot of their strategies require jumping in and out of positions frequently (these funds almost exclusively invest in liquid assets)
  • Shorter lock-up periods, more frequent opportunities for redemptions (this report states a typical lock-up period of 6 months and monthly redemption frequency)
  • Lower management fees, creating stronger incentives for managers to perform well against benchmarks / high watermark (keep in mind, this report shows that performance fees were on average ~4% higher for Quant funds)
  • Automation & algorithmic trading: Quant funds typically employ automated trading strategies, which often do not require human intervention to place trades. This can be a huge advantage when operating in markets that are open 24/7

About Consilium

Consilium Crypto is a big data company that provides quantitative and qualitative insights to market participants in the digital asset space, including funds, family offices and exchanges.

Consilium analyzes 17,000 trading pairs, over 1000 assets, across 50+ exchanges, and tracks trading activity to the millisecond. Our system monitors raw transaction data, as well as complete price and liquidity information from order books around the globe. These data pipelines power our core products, designed to help funds find alpha and place large orders efficiently in times of thin liquidity.

For more information, send an email to

DISCLAIMER: Consilium Crypto Inc. research and recommendations are meant for educational purposes only and the opinions expressed do not constitute investment advice. Independent advice should be sought where appropriate. The information in this report is provided "as is" and "as available". All information and opinions expressed herein are current as of publication and are subject to change without notice. Consilium Crypto Inc. does not warrant the accuracy of the materials provided herein, either expressly or impliedly, for any particular purpose and expressly disclaims any warranties of merchantability or fitness for a particular purpose. This document is provided for informational purposes only and should not be used for investment decisions. This is not an offer to sell or a solicitation of an offer to buy any security referenced in this document. Consilium Crypto Inc. does not provide financial or trading advice. For any questions or clarifications, please contact

Get our stories delivered

From us to your inbox weekly.