A report from PwC has suggested that more fund administrators are becoming comfortable with servicing crypto assets and could begin working with clients on the digital assets in the coming months.
The research on crypto hedge funds highlighted the challenges of being able to accurately value a crypto fund and how traditional fund administrators will play a crucial role in the future of the asset class.
PwC said there is currently a lack of ‘traditional’ fund administrators in the crypto asset space and most funds use relatively small fund administrators for NAV calculations.
“Independent valuation is key in order to verify fund performance and to give investors, particularly institutional investors, peace of mind that their assets are being properly valued,” the report said.
“Today there are only a limited number of fund administrators servicing the crypto space. But this looks set to change over the coming months as the industry matures and some of the more established players become more comfortable with crypto assets and decide to move into this space.”
While the lack of traditional custody offerings for crypto funds has been widely discussed due to security concerns and the requirements of institutional investors, fund administration has seldom come under the spotlight.
The TRADE Crypto looked into the fund administration space for a feature in October 2018, discovering that a number of incumbent providers have stepped into the space, including Trident Trust, Apex Fund Services and Stonegate Fund Services.
Other players such as Triple Leo Consulting, NAV Fund Administration Group and Theorem Fund Services are also offering services. Technology provider Lukka also established itself over the past year providing services to at least a dozen fund administrators.
“Independent valuation is key in order to verify fund performance and to give investors, particularly institutional investors, peace of mind that their assets are being properly valued. Having a detailed and rigorous valuation policy that determines the process and the related checks and balances on valuation is vital,” PwC said in the report.
The PwC report showed that crypto hedge funds had median returns of -46% during 2018. Results also revealed that funds tend to be domiciled in the same jurisdictions as traditional hedge funds, with the top three jurisdictions for the fund entity being the Cayman Islands, the United States and the British Virgin Islands.