Alternative Investment

Now is not the time for Crypto, multi-asset managers warn

Crypto has had a torrid time in 2022. 

Quite apart from the high-profile scandal of FTX and its collapse, which sent shockwaves around the world, British regulators and policy makers have been cracking down on and debating over crypto in the UK.

Early in December, the High Court in London ordered a number of crypto exchanges to reveal the personal data of some of their users after a fraud was uncovered. 

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Later on in December, the FCA announced it had cracked down on misleading promotions after 164 cases fall foul of rules – many of which related to finfluencers promoting crypto assets. 

And while many financial advisers currently do not think portfolios should ever contain crypto assets, the day may come when crypto assets become regulated and therefore have a place in well-diversified investment portfolios.

But what do multi-asset managers think? In their quest to provide well-diversified portfolios, alternative asset classes such as infrastructure or real estate, can and do play a part in the quest for diverse income streams. 

Could crypto become an ‘alternative’ asset class? 

What the managers say

FTAdviser asked several multi-asset managers for their thoughts on incorporating crypto within portfolios. 

Ian Jensen-Humphreys, portfolio manager at Quilter Investors says it would be “unlikely”. 

He explains: “As fundamental investors, it is unlikely that crypto assets will become part of the multi-asset arsenal, particularly as a reliable or thorough way to value crypto at large is yet to be found.

“The technology behind crypto, however, is more likely to make its way indirectly into our funds – be that through software integration or other exposures.”

Similarly, Guillaume Paillat, multi-asset fund manager at Aviva Investors, believes it will be a long time before such assets can be properly regulated and a valuation standard can be assessed.

Ian Jensen-Humphreys, Quilter Investors

Paillat says: “They are lightly regulated and they are hard to value, offering no direct interest or dividend - so not ideal, especially against a backdrop of rising interest rates. 

“Also, the volatility is so unstable it is difficult to mix with other traditional assets like bonds and equities.”

He adds: “It’s difficult to develop a robust investment process for an asset that is so driven by speculation. The potential for large losses based on little new information is striking.

“However, with more countries supporting crypto payments, a more regulated ‘official’ series of digital currencies could be the way of the future. ”

Exchange-traded funds

Some crypto-based exchange-traded funds have been given the green light by regulators such as the Securities and Exchange Commission. These could offer a way for investors to have a form of synthetic exposure to crypto assets without being invested in them directly. 

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