Nick Dignam from Fortitude Investment Partners shares insights with Lachlan Maddock from Fortitude Investment Partners on how a diversified portfolio in mid-market private equity is structured. The Inside Adviser
The world of alternative investments is at a crossroads. As markets defy expectations and liquidity concerns take centre stage, investors find themselves forced to rethink how they deploy capital in an increasingly complex environment.
Pressure on advisers to sharpen crypto knowledge
Coalition Senator Andrew Bragg may have become a hero to digital asset and cryptocurrency enthusiasts in Australia and around the world. The release last week of the Senate Select Committee on Australia as a Technology and Financial Centre’s Final Report flagged a number of recommendations that will further the legitimacy of the burgeoning sector.
The profile of a typical financial adviser in Australia is male, and over 50 years of age, by no means at the centre of the current cryptocurrency boom that has seen the price of Bitcoin consistently reach new all-time highs. On the whole, it is the younger cohorts that are embracing the decentralisation of the financial system, yet the proposals put forward may force advisers to invest some time understanding the sector.
According to the report, some 25 per cent of Australia’s 25 million people have held or continue to hold cryptocurrencies. The lack of regulation, combined with concerns from compliance teams, legal offers, and professional indemnity insurers has made it difficult for advisers to embrace the sector, despite the track record of embracing innovative products including exchange-traded funds.
Australian cryptocurrency marketplace and educator Cointree has said that the inquiry marks a key milestone in Australia’s relationship with digital assets, which will play an increasingly significant role over the coming decades.
“It’s clearly a sign that the industry is maturing,” says CEO Shane Stevenson.
The recommendations, and they are only recommendations at this point, stand to benefit both investors, prospective asset managers, and advisers, instilling greater confidence in security and transparency. The establishment of a “market licensing regime,” not unlike the Australian Stock Exchange, for digital currency exchanges is a clear plank of this. This entity will seek to apply capital adequacy, auditing, and responsible person tests as they would any other marketplace.
Stevenson says, “while it’s good progress for crypto exchanges like Cointree, more importantly, the inquiry is great news for crypto traders. As the report mentioned, 25 per cent of Australians have traded crypto, and more clarity around regulations is going to give them more protections as consumers.”
The committee also recommended the government establish a custody and depository regime for digital assets, with minimum standards, which has been a common concern expressed over recent years by professional investors. Of most interest to advisers will be the commitment to conduct a “token mapping exercise,” or what will ultimately become a catalogue of digital assets of all kinds.
“If these new regulations are implemented, it will allow larger institutions like pension funds to enter the space with more significant mandates. If these institutions allocate even a small percentage of their portfolios toward crypto, it will likely drive crypto prices much higher,” Stevenson suggests.
Whilst the majority of Australia’s funds and exchanges operate with access to a licensing regime, not all do, with expectations the implementation of these recommendations will further “weed out any undesirable players.”
One of the more interesting proposals was to offer a company tax rate discount of up to 10 per cent for those crypto-mining organisations that source renewable energy.
Ultimately, this shows a forward-looking government and a prompt for advisers to start to research the sector more widely.
