Bitcoin has been the best performing asset for years. The regulatory hurdles and mass-perception of Bitcoin has changed during that time, too. I think it'll be silly for institutions and funds to not have some form of exposure for cryptocurrencies, especially given Bitcoin's performance. In fact, I still think 1% is a bit stingy at this point... Although it's a good starting point :-)
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I remember reading a study that was put out by a university a while back... They concluded that a 3% allocation was the optimal model, though a 5-6% allocation was recommend for the less risk averse.
That seems like a pretty good amount. For a large fund with huge investments, I think that level of diversification is pretty good for a nascent asset such as Bitcoin, just to balance out those risk-to-return models.