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Family offices see rising interest in digital assets

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(Kitco News) - As the world moves further into financial uncertainty, family offices are showing an increased interest in cryptocurrencies as they look for places to invest the cash stockpiles that have been accumulated during the past two years of market turmoil.

According to a report from Ocorian, a global provider of services to high-net-worth individuals, 99% of those surveyed said that increasing exposure to alternative asset classes is a long-term trend.

Included in the list of alternative asset classes are capital financing, commercial developments, traditional alternative asset classes such as private equity, commodities and hedge funds, and digital assets.

The study by Ocorian included responses from more than 130 family office professionals responsible for over $62 billion in assets under management. The global study interviewed family offices in the US, UK, Canada, China, Germany, India, Norway, Saudi Arabia, Singapore, South Africa, Sweden, Switzerland, UAE, Denmark, France and Japan.

Focusing specifically on digital assets, Ocorian found that 90% of those surveyed said their clients are looking to include crypto and digital assets in their investment strategies.

While the interest is high, there are a number of challenges family offices face that have hampered adoption.

The regulatory landscape continues to be a major barrier, with 80% of family offices reporting that they are struggling to find support with regulation and reporting obligations. Inconsistencies between global tax regimes are also an issue.

Due to these roadblocks, 80% of family offices and high net-worth individuals have also indicated that they are struggling to outsource to third parties who are willing to support them with the regulation and reporting obligations that come with investing in digital assets.

“Many family offices, particularly those run by younger, tech-savvy generations want to make a move into investing in crypto and digital assets,” said Amy Collins, Head of Family Office at Ocorian. “However, given the challenges and risks associated with this asset class, it’s concerning that so many are struggling to find the right support with the practical, regulatory and reporting requirements.”

Since cryptocurrencies and other alternative assets are known to carry a higher level of risk, Ocorian wanted to determine what level of risk institutional investors are comfortable with. The survey found that 87% of family offices are predicting an increase in the risk appetite of their clients over the year ahead. Around a third (31%) forecast a dramatic increase in family offices’ risk appetite.

The growing appetite for risk was attributed to an increase in optimism about the global economy, with 57% of those questioned saying that there is a feeling that inflation has peaked, while 54% believe that markets have passed the worst point and are set for recovery.

Looking at the data from family offices in the U.S., Ocorian found that 32% of respondents said that they were seeing increased exposure to alternative asset classes in the Americas.

Institutions remain highly interested in crypto ETFs - survey

The results of this survey provide a contrasting view to one conducted by Goldman Sachs between Jan. 17 and Feb. 23, which found that while 26% of family offices are invested in cryptocurrencies in 2023, up from 16% in the 2021 survey, only 12% expressed potential future interest, a significant decline from the 45% who were looking to invest in crypto in 2021.

It’s possible that the improvement seen in the cryptocurrency market since the first two months of the year has led to rising interest in digital assets, but it remains to be seen what level of adoption institutional investors will see moving forward.

While institutional investors are beginning to show an increase in interest, the Fed’s 2022 Economic Well-Being of U.S. Households report – which was released this month – shows that the percentage of Americans holding or using crypto fell from 11% in 2021 to 8% in 2022.

The central bank attributed the drop in holding and using crypto to the fall in digital asset prices last year. Income level also played a factor, as adults with an income of $100,000 or more were more likely than adults with lower incomes to hold cryptocurrency as an investment.

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