Last year, Germany introduced the Fund Location Act, which allows specific funds – ‘spezialfonds’ (open-ended domestic special AIFs with fixed investment terms) – to allocate up to 20% of their assets under management to crypto/digital assets.
New research from London-based Nickel Digital Asset Management, Europe’s largest regulated digital assets hedge fund manager, has found that 30% of wealth managers, pension funds and other institutional investors expect over half of Spezialfonds in Germany to allocate to digital or crypto assets over the next two years.
Over the long-term, 78% of the survey respondents expect them to allocate over $100 billion to crypto and digital assets – at least 5% of their of their combined assets, which are around $2 trillion. That’s a pretty significant flow of new capital into cryptocurrencies if Nickel is correct.
Fiona King, Managing Director Institutional Sales at Nickel Digital, said: “Germany has been moving swiftly to legitimise digital assets, and the passing of the Funds Location Act last year is just one example of this. Germany has taken a global lead in embracing the new asset class. Our research shows professional investors expect Spezialfonds to capitalise on the Fund Location Act and start allocating to digital and crypto assets. This will provide a further strong endorsement for digital and crypto assets and lead to more professional investors allocating to this new asset class for the first time or increasing their existing exposure.”
The survey of 200 professional investors from across seven countries including Germany, who collectively manage around $329 billion in assets, reveals 30% believe between 25% and 50% of Spezialfonds will allocate to digital and crypto assets between now and 2024. Only 14% anticipate less than 10% of these funds will do so.
Cryptocurrency is considered to be a new and fairly revolutionary topic in the traditionally conservative world of German asset management. However it is becoming obvious that there is growing appetite on the part of the country’s pro investors for some level of exposure to digital assets. This is unlikely to be a blind punt on Bitcoin however, but rather a more measured approach.
Spezialfonds and the the Fund Location Act
The Fund Location Act states that Spezialfonds can allocate up to 20% of their assets to digital and crypto assets, and 22% of professional investors surveyed by Nickel Digital believe they will allocate less than 5% over the longer-term. Some 19% believe they will allocate between 2% and 5%, but 78% expect them to allocate a higher percentage of their portfolios to digital and crypto assets.
The legislation came into force in Germany in August last year. The expectation within German fund management circles – e.g. the country’s own investment fund association – is that most institutional players will remain well below the band that is now permitted. Germany’s regulator, BaFin, has said that investors still need to proceed with caution when it comes to investing in digital assets, although it is encouraging the development of blockchain within the country.
“We are convinced that digital assets, of which crypto currencies are only a part, create a new asset class that will establish itself in the portfolios of institutional investors over the long-term,” Daniel Andemeskel, head of innovation management at Universal Investment and managing director of UI Enlyte, told pensions funds magazine IPE.
Unlike the UK, Germany permits the listing of ETCs that in turn can hold cryptocurrencies.
