Wealth Managers Reluctant to Invest in Crypto

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Wealth managers around the world are still reluctant to invest in cryptocurrency on behalf of their clients amid concerns over the lack of regulation, the lack of education as well as high volatility, a new study by American asset management company Mercer found.

The survey, which polled 125 wealth managers worldwide, found that just 8% of participants indicated having invested in crypto for their customers.

Wealth managers in Europe were found to be the most open to the new asset class, with 12% of respondents in the region stating that they did invest in crypto in client portfolios, while their American counterparts ranked as the least open to crypto with just 3%.

Unsurprisingly, wealth managers cited the lack of regulation (63%), the lack of transparency and education (51%), and high volatility (47%) as their biggest concerns regarding crypto.

The survey also sought to understand what wealth mangers believed were their biggest opportunities. Reflective of their concerns about low investment returns, respondents identified diversifying away from traditional asset classes (59%) as the biggest investment opportunity over the next two years. Opportunities related to climate change (41%) also ranked highly, followed by technology (31%) and demographic shifts (28%).

Environmental, social and governance (ESG) (3%), investing in China (9%) and digital assets (18%) ended up as the lowest-ranked opportunities for wealth managers.

Wealth managers’ reluctance to engage in crypto came despite a rather considerable proportion of them holding the belief that within the next few years, crypto will become an institutional-grade investment. 44% of respondents agreed that this statement was likely or highly likely to happen. An equal number of respondents said it was unlikely or highly unlikely to be the case, while 13% saying they did not know.

Results of the Mercer survey echo those of similar studies on the topic which largely revealed investment professionals’ hesitation to participate in crypto markets.

A Natixis Investment Managers survey published in February 2022 found that roughly two out of three “fund selectors” – the professionals in charge of analyzing and choosing the investments their firms offer customers – don’t believe individual investors should own cryptocurrency in their portfolios.

Like the findings of the Mercer survey, these investment professionals’ reluctance was found to be largely due to challenges relating to crypto’s transparency issues and the industry’s lack of regulation. About 87% agreed crypto assets needed to be more transparent, while 84% indicated thinking that the asset class needed some type of regulatory oversight.

Cryptocurrencies are considered a risky investment in part due to their highly volatility and unpredictable price fluctuations. Since November 2021, nearly US$2 trillion has been wiped off the crypto market in what experts have warned as being a “crypto winter,” or a prolonged bear market.

Customer demand remains high

Despite high volatility and unclear regulations, private investors have continued to show interest in crypto.

A 2022 study conducted by Strategy& and PwC, which polled 2,000 private crypto investors in Germany, Switzerland and Turkey, found that 10% of all Germans and 17% of all Swiss owned cryptocurrencies.

50% of those surveyed indicated having invested between EUR 1,000 and EUR 10,000 in the asset class, and over 80% of crypto-investors said they wanted to expand their crypto holdings.

These figures show that crypto is no longer a niche product and has, for several investors, become a key component in their asset portfolio, the report says.

Total global wealth grew by 9.8%, totaling US$463.6 trillion as of the end of 2021, according to the 13^th edition of the Credit Suisse Global Wealth Report. Setting aside exchange rate movements, this translates to a growth rate of 12.7% in aggregate global wealth, the fastest annual rate ever recorded, the report says.

Wealth per adult rose 8.4% during the course of the year to reach US$87,489, close to three times the level recorded at the turn of the century.

All regions contributed to the rise in global wealth, but North America and China dominated. North American accounted for a little over half the global total and China, for about a quarter, the report says. In contrast, Africa, Europe, India and Latin America together accounted for just 11.1% of global wealth growth.

With over 140,000 ultra-high-net-worth individuals (with wealth above US$50 million) in 2021, the US continued to rank the highest in the wealth pyramid, followed by China with 32,710 individuals. Worldwide, Credit Suisse estimates that there were 62.5 million millionaires at the end of 2021, 5.2 million more than the year before.

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