With a growing number of investors taking to cryptocurrency, asset managers will need to understand the emerging asset class and decide whether it is one in which they should develop expertise and offer products.
Recent developments in the cryptocurrency space certainly create a case for increased attractiveness and possible participation in the ecosystem. However, cryptocurrency is not necessarily appropriate for every investor or adviser with a desire to try something new, nor is it easy to understand, Cerulli Associates says in a new report. It believes individual investors will benefit from the guidance of trusted asset managers to help navigate the complex landscape.
Close to 70% of advisers do not expect to use cryptocurrency when creating portfolios, but close to 30% either have done so or envision taking this leap, according to the report.
“It is certainly possible that a broad range of asset managers find their niche and ability to deliver needed expertise in the management of cryptocurrency products,” associate director Daniil Shapiro says. “Cryptocurrency may provide active managers with an opportunity to deliver their value via their expertise in an opaque market segment in which investors are looking for help, especially given the challenges they face to outperform their benchmarks.”
An opportunity is also likely for existing managers and platforms to work with regulators to further the cause of offering retail investors thoughtful and balanced access to cryptocurrency products.
Cerulli says the increased volume of US product filings, the listing of multiple bitcoin exchange-traded funds in Canada, and investors being poorly served by the existing stable of products will all serve to nudge regulators towards approving such products.
Asset managers working with regulators would be well aligned with investor interests to the extent that it would allow retail investors to access education, guidance, and controls for accessing the exposures. It would also serve to steer retail investors from risky bets and towards modest allocations in crypto assets, with the potential for some intrinsic value.
Cerulli urges managers to evaluate the cryptocurrency opportunity, noting that there is both a carrot and a stick argument. “There is a risk to asset managers in not taking a view on the emerging asset class,” says Shapiro. “As established financial services firms will at times make it difficult for investors to access these products, investors will establish relationships with external providers, resulting in brokerages turning away clients while traditional managers appear to struggle to integrate a newer product set.”
Asset managers should therefore develop a view on the cryptocurrency ecosystem and deliver value to clients by offering education and guidance, the research and consulting firm says.