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Recent PwC Report Ranks Cayman Islands and British Virgin Islands as Preferred Jurisdictions for Crypto Open Funds

In June 2022, PwC released its 4th Annual Global Crypto Hedge Fund Report (the “Report”), an overview of the global open-ended crypto fund landscape that dives into the various elements that define these funds, including but not limited to their preferred location, market size, fees, type of investors , liquidity conditions , strategies and performance, custody and governance.

In the report, PwC focuses on funds that invest/trade in liquid public cryptocurrencies and other instruments and excludes crypto index funds and crypto venture capital funds.


The report revealed that the most common jurisdictions where open-ended crypto funds are domiciled are:

  1. Cayman Islands – is the preferred place with almost half of the market (49%).

  2. British Virgin Islands (“BVI”) with 13%. BVI overtook the United States as the second most popular location. Each location saw its market share increase slightly year over year, the Cayman Islands from 48% to 49% and the British Virgin Islands from 11% to 13%.

  3. United States have seen their market share fall from 46% to 10% in 2021.

The report lists factors that influence the decision on crypto hedge fund domiciliations and the most popular responses were due to “cryptocurrency-friendly” (22%), “regulatory” (20%) and “friendly with cryptocurrencies” regulations. funds” (17%). This indicates that since many governments and authorities still take a rather hostile or indifferent approach towards the crypto industry, or rather still try to find the right mix of regulations, other jurisdictions like Cayman and the BVIs have stepped up and provided solutions that seem to tick most of the boxes to make them attractive as domiciles for these types of investment funds.

Market size

According to the report, total assets under management (“AT M”) crypto open-ended funds grew 8% to around $4.1 billion in 2021, from the $3.8 billion reported by respondents to the report in 2020. According to the report, there were fewer funds with lower AUM levels at the end of 2021, while at the other end of the spectrum, the number of funds managing larger assets was considerably higher. An important detail noted in the report is that 89 hedge funds accounted for approximately US$436 billion in assets under management.


According to the report, the average management fee for 2021 in crypto open-ended funds remained the same (2.2%). The lack of significant change in management costs probably reflects the fact that operating costs could have remained at a similar level compared to previous years. The average performance fee decreased slightly (from 22.5% to 21.6%). The drop in performance fees is likely the result of competitive pressures starting to build as more funds enter the cryptocurrency space and compete for new investors, resulting in slightly lower overall fees. lower. The report raised concerns about the future higher organizational cost of crypto open-end funds as global regulations become more detailed and investors demand more professional and institutional setups.


The report identified wealthy individuals (“HNWI”) as the most common type of investor in crypto open-ended funds, with over 80% of funds surveyed reporting them as their usual type of investor. HNWIs are followed by family offices representing 66% and funds of funds representing just over 53% in third place, where HNWIs are also the largest investors within these funds of funds.

Bearing in mind that the report surveyed retail crypto open-end funds, the average number of investors per fund is 54. However, a more representative value might be the median number of investors, which is 30.

The report found that the average investment made in crypto open-ended funds is $1.63 million, but most funds have a ticket size of less than $0.5 million.


The report states that 29% of open crypto funds surveyed have at least half of their daily cryptocurrency trading volume in Bitcoin, up from 56% in 2020.

The top three sectors that crypto hedge funds have invested in are Store of Value (Bitcoin and Litecoin) with 86%, DeFi (Uni, Aave and Sushi) with 78%, and Infrastructure (Ethereum) with 74% based cryptocurrencies. In 2021, more altcoins were traded by over 40% of funds compared to last year when a single altcoin (Ethereum) was traded by over 40% of funds. 2021 shows that Ethereum (ETH, 83%), Solana (SOL, 51%), Polkadot (DOT, 48%), Terra (LUNA, 45%) and Avalanche (AVAX, 42%), were the most traded coins (stable coins have been excluded).

However, the recent incident of the LUNA collapse could become a setback for the general crypto industry in the short term.


  • Market Neutral: The most common investment strategy (30%) among crypto open funds is Market Neutral. These funds aim to make profits regardless of the direction of the market, typically using derivatives to mitigate or eliminate broader market risk.

  • Quantitative Long Short: This investment strategy accounts for a quarter of all currently active crypto funds with 25%. Quantitative funds, also known as quantitative funds, are investment funds where crypto is chosen based on numerical data compiled by quantitative analysis. Liquidity is essential for these strategies and limits these funds to only trading more liquid cryptocurrencies.

  • Long discretionary only: This investment strategy accounts for 14% of all crypto funds. For crypto open-ended funds involved in investing in early token and coin offerings and investing and holding in other more liquid cryptocurrencies and digital assets.

Discretionary long/short strategy: This investment strategy represents a 12%. For open-end crypto funds, the discretionary long/short strategy is to buy cryptocurrencies and digital assets that are expected to rise in value and short sell cryptocurrencies and digital assets that are expected to decline in value.

In terms of performance, these strategies had very different results. Market Neutral funds achieved an average performance of +37%, Discretionary Long an average performance of +420% and Quantitative Long/Short an average performance of +116%. Contrary to the trend of previous years, crypto hedge funds had a median performance of 63.4% in 2021, slightly better than the price of BTC, which rose by around 60%.


Guardian: Interestingly, as the crypto ecosystem continues to mature and institutional investor demands are spread, the report shows that the digital asset custody market has grown. This led to the use of independent guards. Compared to 2020 data, the use of independent custodians has increased from 76% to 82%, with funds opting for either third-party custodians or exchange custodians. For example, quantitative funds, discretionary long/short and multi-strategy funds may have their cryptocurrencies and digital assets directly with the exchanges they use to trade continuously. Therefore, it is more important to have a well-defined and up-to-date risk management policy than to have a custodian.

Independent directors: The report states that in 2021, the percentage of open crypto funds with an independent director on their board increased from 38% to 51%. This number has increased for three main reasons:

  1. A growing number of newly formed, governance-minded funds, which are driving the demand for independent directors;

  2. existing crypto hedge funds are becoming more structured and financially capable of hiring senior talent; and

  3. A growing number of directors with industry-specific expertise and knowledge as the industry matures.

Administrator: 91% of open crypto funds surveyed for the report have appointed and use independent third-party administrators. The main service required by these funds from the administrators is the independent calculation and verification of the net asset value and the preparation of all information required for the auditor.

Institutional and/or sophisticated investors are increasingly reluctant to invest in an open-end crypto fund that has not appointed an independent fund administrator.

Whatever the choice of the fund administrator, the valuation policy must be the subject of particular attention. Most funds will have their methodologies and valuation frameworks defined in the Private Placement Protocol (PPM). It is important for any fund to ensure that it complies with the key offering conditions set out in its offering documentation.


  1. Institutional and sophisticated investors are familiar with the Cayman Islands and BVIs and the regulatory regime for open funds. These investors feel more comfortable investing in crypto open-ended funds established in Caymans and BVI, as both of these offshore jurisdictions have a track record, infrastructure, and regulations that facilitate the operation of these funds.

  2. The investment fund industry is slowly starting to consider cryptocurrencies and other digital assets as other underlying assets in which an open-ended fund can invest.

  3. The tax neutrality of the Cayman Islands and BVI provides the perfect location for crypto open funds and investors to manage their tax affairs in the most efficient way.

  4. Cayman Islands and BVI laws are a combination of common law and statute and are heavily based on English common law. This gives Cayman Islands and BVI law and their respective legal systems a common origin with those of many of its users’ jurisdictions, including the United States. It also means that a Cayman Islands or BVI registered fund and its participating shares are well recognized and accepted around the world.


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