In today's evolving financial landscape, family offices are increasingly exploring digital assets to diversify portfolios and tap into their growth potential. To better understand this dynamic sector and how family offices can navigate it effectively, Crain Currency spoke with Kristen Mirabella, head of partnerships at Eaglebrook Advisors, a leading crypto separately managed account (SMA) platform.
What factors should family offices consider when determining whether now is the right time to increase their exposure to digital assets?
We’re still in the early stages of adoption of digital assets, and increasing exposure now offers the chance to participate in the next potential bull run. Prices have been stable for months, and as institutional investors become more comfortable with digital assets and ETFs, more wealth managers are likely to introduce these solutions to clients. Whether increasing exposure or allocating for the first time, there are now more secure, regulated options available to meet clients’ needs.
With recent rate cuts and a greater likelihood of family offices turning to riskier assets, what makes digital assets appealing in the current economic landscape?
Advisers and family offices that invest in digital assets typically allocate around 1% to 3% of their clients' portfolios. Few other asset classes offer such potential for outsized returns relative to the size of the allocation, making digital assets an attractive option in a risk-on environment.
What advantages could early entry into digital assets offer family offices, and how can they position themselves strategically?
Many retail investors already hold crypto in separate accounts. By entering the digital asset space early, family offices can help clients manage these holdings as part of their overall portfolio. Some clients may even seek help managing significant gains, but if advisers lack crypto knowledge, it could harm the client relationship.
Family offices now have ample opportunities to learn about digital assets. By becoming knowledgeable and identifying the best ways to allocate, they can support client demand when it rises. While ETFs are a common entry point, SMAs offer more diverse solutions, tax optimization and added measures of security when compared to a standard retail account. Advisers who prepare now will be best positioned for the next market cycle.
What are some key risks and misconceptions family offices should be aware of when approaching digital assets?
Many wealth managers and family offices hesitate to offer digital assets due to misconceptions: Crypto is too risky, regulation is lacking, or they’ll only act when client demand is overwhelming. The risk in these assumptions is missing the opportunity to prepare or offer clients innovative options.
Another risk is the noise around how best to allocate. Many tech platforms have tried to cater to wealth management but lack an understanding of the business’ day-to-day challenges. Similarly, traditional financial firms that enter the crypto space often underestimate the resources required. It’s crucial to find platforms that understand both crypto and wealth management, have long-term commitment, and [have] strong partnerships for data and asset management.