A Small Group of Investors Believes in Crypto. Now They Just Have to Convince Everyone Else.

In a Commonfund survey of institutional investors, 10 percent of respondents said they expect crypto to yield strong returns over the next 12 months.

Luke MacGregor/Bloomberg

Luke MacGregor/Bloomberg

Amid inflation concerns and geopolitical tensions, institutional investors are placing their confidence in private equity, private real assets, and venture capital as the most reliable ways to achieve high risk-adjusted returns over the next year. A much smaller group, however, believes that cryptocurrencies should also be a part of that category.

Earlier this month, asset management firm Commonfund held its 24th annual three-day Commonfund Forum, held in person for the first time since 2019. Before the event, attendees — including investors representing endowments, foundations, pensions funds, insurance companies, family offices, RIAs, and healthcare organizations — were asked to complete a survey. On Tuesday, Commonfund released its findings, which are based on responses from around 150 investors.

According to the survey, 70 percent of investors said that they largely expect private equity to deliver the best risk-adjusted returns over the next 12 months. PE was followed by private real assets (41 percent), venture capital (37 percent), public equities (29 percent), private credit (19 percent), public real assets (13 percent) and cryptocurrencies (10 percent).

“When you’re taking a survey like this, you’re going to be influenced by what you just saw in your rear-view year, and 2021 was a great year for private capital,” Mark Anson, Commonfund’s chief executive officer and chief investment officer, told Institutional Investor. “And private equity should outperform public equities over the long-term.”

While some crypto-focused investors and managers tout the emerging asset class as a hedge against inflation, Anson said that crypto hasn’t yet matured enough to become a reliable hedge for most investors. To do that, it needs to prove itself over the course of an entire business cycle. “It’s hard to say that crypto is positively or negatively correlated to anything, [because it] just hasn’t been around long enough to demonstrate that,” Anson said. “It’s a very new asset class, if it indeed is an asset class.”


Anson said that investors may be deterred from allocating to cryptocurrencies because there’s no streamlined way to custody them, and he added that fiduciaries largely have no way to ensure that their crypto wallets won’t be hacked and stolen.

Furthermore, he said, it’s difficult to measure risk versus return for crypto. For example, Anson said that the annualized volatility of the Bloomberg Galaxy Crypto Index is 100 percent — three times more volatile than any other asset class. “Cryptocurrencies right now don’t work [in] an asset allocation model,” Anson said. “[There’s] such high volatility that if you’re trying to build a strategic asset allocation, crypto will just fall out because of its overall risk profile.” That volatility, he said, also makes it difficult to build an expected return with cryptocurrencies, because it’s much harder to determine risk premia.

Anson said that the 10 percent of investors who expect crypto to deliver the best risk-adjusted returns in the next 12 months are likely motivated by the industry chatter surrounding the asset class. “It’s topical,” he said, adding that he’s willing to bet that of that 10 percent, only a fraction actually have allocations to cryptocurrencies. “If you were take that 10 percent and ask [how many of them] actually invest in crypto, [it might be] closer to 1 percent,” he said.

In other findings from the survey, 78 percent of respondents said that they believe this year’s overall returns will be lower than average. In 2021, only 58 percent of respondents said the same. Fourteen percent of respondents expect returns to stay the same in 2022, while 3 percent expect them to be higher. Sixty-eight percent of respondents cited inflation as their biggest economic concern in 2022, while 66 percent cited geopolitical tensions, namely the implications of the Russia-Ukraine war.

Current economic concerns also appear to have had an effect on the long-term return outlooks of the survey participants. More than half — 56 percent — said that they’re “cautiously optimistic” that they’ll achieve their target returns over the course of the next decade. “I was surprised to see that it was 56 percent. I would have thought it would’ve been a little higher,” Anson said. “Of course, whenever you take a survey like this, it’s influenced, if not biased, by what’s going on [in the world] right now.”