Pension funds cautiously venture into crypto investments

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The Houston Firefighters’ Relief and Retirement Fund (HFRRF) made the news recently when it announced it was investing $ 25 million in bitcoin and ether, marking what was believed to be the first time ‘an American pension fund entered cryptocurrencies directly into its balance sheet.

Of course, $ 25 million is just a drop in the bucket compared to the $ 5.5 billion in total assets held by the fund – more specifically, that’s just 0.5% of its portfolio. But it was still a notable first step for the historically conservative investment fund. And if other pension and retirement funds follow suit, it could open up a huge source of additional demand for cryptocurrencies, with funds collectively controlling billions of dollars in global assets.

Granted, the HFRRF was not the first US pension fund to invest more heavily in crypto. This distinction appears to belong to the Fairfax County Police Officer Retirement System and the Fairfax County Employee Retirement System, which in 2018 began investing in funds managed by Morgan Creek Digital, which would ultimately add up to a total. of $ 73 million. Morgan Creek funds, however, leaned more towards blockchain technology than bitcoin, so pension funds considered venture capital investments.

In September, news broke that the pension funds, which manage combined assets of $ 7.2 billion, were planning to invest $ 50 million in Parataxis Capital Management’s main fund, which buys digital tokens and coins. cryptocurrency derivatives. The investment has since been approved by the fund’s board of directors.

When asked if the funds are considering other crypto investments and whether direct investments are on the table, Katherine Molnar, chief investment officer for the Police Retirement Fund, said her organization “is considering new investments in the crypto / digital asset space “.

“We haven’t made a final decision on what form this might take. We remain constructive on the expected growth in this area,” Molnar told CoinDesk in an email.

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Growing investment trend?

Last week, Bank of America weighed in on retirement investments in cryptocurrencies in a research note focused on digital assets.

“Our discussions suggest that many pension funds are still in the exploratory stage. Public pension funds in the United States are significantly underfunded at around $ 1.25 [trillion] unfunded liabilities at the end of fiscal 2019, which has led many people to attempt to close the gap between plan assets and obligations through investments. Pension funds held globally $ 35 [trillion] in assets under management [assets under management] at the end of 2020, illustrating the potential tailwinds for digital assets if more pension funds start to increase their exposure, ”wrote analysts Alkesh Shah and Andrew Moss.

BofA referred to investments by pension funds HFRRF and Fairfax and noted that Queensland Investment Corporation, Australia’s fifth largest pension fund, has expressed interest in cryptocurrency investments.

On the flip side, pension funds in South Africa could be banned from investing in cryptocurrencies under a proposed rule change released last week. Other overseas retirement investments also face potential limitations in their ability to invest in crypto.

In the UK, for example, pension funds hire specialist investment managers to invest on their behalf, with the fund trustees unable to participate in the day-to-day management of the fund, Kerrin Rosenberg, CEO of the management company UK-based pension Cardano Investment, which is unrelated to the blockchain, CoinDesk said.

“I am not aware of any UK pension plans that are really considering a strategic allocation to cryptocurrency as an asset class. I would expect that most of the asset allocation models used by consultants would not cover cryptocurrency and, if asked, the consultants would likely discuss, ”Rosenberg wrote in an email.

“However, cryptocurrency investments could be made on a more tactical basis by investment managers as part of a broader mandate,” Rosenberg added.

James Stickland, CEO of London-based digital asset trading infrastructure developer Elwood Technologies, was also skeptical of the trend for pension investments in the United States to reach the United Kingdom.

“In the UK we are seeing growing institutional demand from banks, hedge funds, private companies and even family offices. Yet it is unprecedented to see pension funds weighting even a small percentage of their portfolios to risk assets like bitcoin. I don’t think we’ll see them follow the lead of pension funds in the US anytime soon, but it’s certainly possible if inflation continues to be a concern, ”Strickland said via email.

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