LPs warm up to crypto strategies – survey

The survey found that 30% of respondents already have exposure to funds active in the space and a further 13% expect to make relevant commitments in the next few years.

Within Asia, the likes of Openspace Ventures in Southeast Asia, AirTree Ventures and GD1 in Australia and New Zealand, and AppWorks in Taiwan have either launched dedicated crypto funds, sub-funds, or strategies. Meanwhile, crypto-related start-ups across the region are closing ever-larger funding rounds and attracting support from traditional investors.

Last month, Hong Kong-based Babel Finance, which claims to be the world’s leading wholesale crypto financial services provider, raised USD 80m in Series B funding at a valuation of USD 2bn. Jeneration Capital and Bertelsmann Asia Investments spinout BAI Capital were among the participants, alongside crypto and blockchain specialists Dragonfly Capital and Circle Ventures.

These assets have yet to feature prominently in portfolios assessed by Coller for potential secondary transactions, but Will Yea, a principal at the firm, believes it may only be a matter of time.

“How we get our heads around that depends on the type of business. If it’s an exchange, we need to think about what is being exchanged, how efficient it is, how it competes against others globally, and the regulatory situation. You can understand that in a way that lines up with what we do every day,” he said.

The crypto investment world is broad, especially given venture capital firms increasingly bundle it up with web3 and metaverse agendas. Approximately one-third of survey respondents are already making commitments to funds targeting metaverse-related services and products or expect to start doing so in the next few years.

To date, crypto exchanges and developers of non-fungible tokens (NFTs) – typically for use in gaming contexts – have attracted most of the funding in Asia. However, there is scope for diversification in terms of structure as well as theme. For example, some start-ups are characterised by decentralised ownership and governance, with investors buying tokens rather than equity interests.

“Analysing the different exposures and different measures of investing – and trying to understand how people do it – will be increasingly challenging,” Yea added.

The survey also found that 42% of LPs now report net annual returns of more than 16% across the lifetime of their private equity portfolios. This level, in terms of LP response, has been bettered only once since the survey began 22 years ago – in 2007, ahead of the global financial crisis.

More than half of LPs plan to increase their target allocations to alternatives over the next 12 months, especially in infrastructure, real estate, private equity, and private credit. Over half have already increased allocations to private equity over the past two years. Meanwhile, most LPs said they would achieve their PE return targets if all their funds only achieved median performance.

A majority of investors believe environment, social, and governance (ESG) programs add value by delivering proactive change in portfolio companies as well as filtering out negatives through exclusion of high-risk investments and business practices. Two-thirds of European LPs – though only 24% of Asian investors – have increased the number of sectors excluded for ESG reasons in the last five years.

While climate change is an overwhelming environmental concern, only 4% of LPs have asked GPs to adopt the Science Based Targets initiative (SBTi) in measuring and reporting environmental impacts in their portfolios. Many expect to start making this request in the next few years.

“This is where ESG becomes harder if you are not specific and consistent around how you report,” said Yea. “If you are not disclosing things that investors understand or believe in, it becomes a challenge to do ongoing reporting. This is different to initial ESG screening, but it is necessary for a lot of GPs in terms of holding themselves accountable.”

The summer 2022 edition of Coller’s barometer series researched the plans and opinions of 110 investors in private market funds.

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• Topics
• LPs
• Fundraising
• Performance
• Asia
• Cryptocurrency
• blockchain
• metaverse
• ESG
• Coller Capital