Pension Funds Wade Gingerly Into Crypto Investments

  • November 2, 2021

The Houston Firefighters’ Relief and Retirement Fund (HFRRF) made information lately when it introduced it was investing $25 million in bitcoin and ether, marking what was believed to be the primary time a U.S. pension fund had put cryptocurrencies straight on its steadiness sheet.

Of course, $25 million is just a drop within the bucket in comparison with the $5.5 billion in whole property held by the fund – extra exactly, it represents simply zero.5% of its portfolio. But it nonetheless was a notable first step by the traditionally conservative funding fund. And if different pension and retirement funds observe swimsuit, it may open up an enormous supply of further demand for cryptocurrencies, with the funds collectively controlling trillions of dollars in international property.

To be certain, the HFRRF was not the primary U.S. pension fund to put money into crypto extra broadly. That distinction seems to belong to the Fairfax County Police Officers Retirement System and Fairfax County Employees’ Retirement System, which in 2018 started investing in funds managed by Morgan Creek Digital that may finally add as much as a mixed $73 million. The Morgan Creek funds leaned extra towards blockchain know-how than bitcoin, nonetheless, so the pension funds thought-about the strikes enterprise capital investments.

In September, information broke that the pension funds, which handle a mixed $7.2 billion in property, have been planning to make a $50 million funding in Parataxis Capital Management’s essential fund, which buys digital tokens and cryptocurrency derivatives. The funding has since been permitted by the funds’ board.

Asked if the funds are contemplating additional crypto investments and whether or not direct investments have been on the desk, Katherine Molnar, chief funding officer for the cops retirement fund, mentioned her group is “contemplating additional investments within the crypto/digital property area.”

“We haven’t made a ultimate resolution as to what type which may take. We stay constructive on the anticipated progress of this space,” Molnar advised CoinDesk in an e-mail.

Growing funding development?

Last week, Bank of America weighed in on pension investments in cryptocurrencies in a digital assets-focused analysis word.

“Our discussions counsel that many pension funds are nonetheless within the exploratory stage. State pension funds within the U.S. are considerably underfunded with ~$1.25 [trillion] in unfunded liabilities as of the top of FY19, which has led many to aim to make up the shortfall between plan property and obligations by way of investments. Pension funds globally held $35 [trillion] in AUM [assets under management] on the finish of 2020, illustrating the potential tailwinds for digital property if extra pension funds start so as to add publicity,” wrote analysts Alkesh Shah and Andrew Moss.

BofA referenced the HFRRF and Fairfax pension fund investments and famous that Queensland Investment Corporation, Australia’s fifth-largest pension fund, has expressed curiosity in cryptocurrency investments.

On the opposite hand, pension funds in South Africa could possibly be prohibited from investing in cryptocurrencies beneath a rule change proposal revealed final week. Other abroad pension investments additionally face potential limitations on their skill to put money into crypto.

In the U.Ok., for instance, pension funds rent specialised funding managers to take a position on their behalf, with fund trustees unable to take part within the day-to-day administration of the fund, Kerrin Rosenberg, CEO of U.Ok.-based pension administration agency Cardano Investment, which is unrelated to the blockchain, advised CoinDesk.

“I’m not conscious of any U.Ok. pensions really contemplating a strategic allocation to cryptocurrency as an asset class. I’d anticipate that many of the asset allocation fashions utilized by consultants don’t cowl cryptocurrency, and, if requested, the consultants would most likely argue,” Rosenberg wrote in an e-mail.

“However, cryptocurrency funding could possibly be made on a extra tactical foundation by funding managers as a part of a wider mandate,” Rosenberg added.

James Stickland, CEO of London-based digital asset buying and selling infrastructure developer Elwood Technologies, was additionally skeptical that the U.S. pension funding development would make it to the U.Ok.

“In the U.Ok., we’re seeing rising institutional demand from banks, hedge funds, non-public corporations and even household places of work. Yet, it’s unprecedented to see pension funds weighting even a small share of their portfolios to threat property like bitcoin. I don’t suppose we’ll see them following the lead of pension funds within the U.S. anytime quickly, however it’s actually potential if inflation continues to be a priority,” Strickland mentioned through e-mail.


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