Pension funds dabble in cryptocurrencies after Bitcoin surges

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Pension funds are trying to buy Bitcoin, a sign that even the normally staid financial community is finding it hard to ignore the cryptocurrency's potentially huge returns.

Pension plans in Wisconsin and Michigan are among the largest holders of U.S. stock market funds dedicated to cryptocurrencies, while some pension fund managers in the United Kingdom and Australia have also invested in Bitcoin in recent months using funds or derivatives. Small allocation.

Advisers say the surge in Bitcoin prices last year, which more than doubled to $100,000, spurred interest from conservative trustees.

Cryptocurrency analysts predict that the price of cryptocurrencies could double again this year with the advent of a pro-cryptocurrency Trump administration. The president-elect has vowed to make the United States the “world’s Bitcoin superpower” and end regulatory crackdowns on the industry.

Matt Scott, a consultant at Mercer Consulting, which advises UK pension funds, said: “We’ve had a lot of inquiries since election day – trustees don’t like to think there’s a hot asset class they’re not familiar with .”Know anything. “

Most pension funds have turned to regulated U.S. exchange-traded funds approved last year, which invest directly in cryptocurrencies on behalf of investors and track the prices of tokens such as Bitcoin and Ethereum.

As of the end of September, the Wisconsin Investment Commission was the 12th largest shareholder in BlackRock's Bitcoin ETF, which has gained 50% since the beginning of the quarter and its holdings are now worth about $1.55, according to BlackRock's latest filing. billion dollars. .

According to a regulatory filing in November, Michigan is the sixth-largest shareholder of the Grayscale Ethereum ETF, with a stake worth $12.9 million. It is also the 11th largest holder of the ARK 21Shares Bitcoin ETF, run by investor Cathie Wood, which has gained 14% since the election.

Pension funds are returning to the cryptocurrency space after some notable failures during the cryptocurrency market crisis two years ago. Canada's Ontario Teachers' Pension Plan wrote off a $95 million investment in failed digital currency exchange FTX when it collapsed in 2022. Caisse de dépôt et Placement du Québec, Canada’s second-largest pension fund manager, admitted that it entered the cryptocurrency space “too early”. It wrote off a $150 million investment in crypto lending platform Celsius Network.

“There’s no question that the headwinds are disappearing . . . I think you’re going to see more of this institutional adoption,” said Alex Pollak, head of UK and Israel at Swiss cryptocurrency exchange trading products provider 21Shares.

In the UK, pensions consultancy Cartwright said it had advised on its first Bitcoin deal, with an undisclosed small £50m pension scheme allocating around £1.5m directly to Bitcoin rather than Through ETFs, the hope is that huge returns might help address its funding deficit.

Sam Roberts, director of investment advisory at Cartwright, said that while the pension industry was “slowly moving”, he expected this year to be “very interesting” in terms of decisions on plans to allocate more funds to cryptocurrencies.

He said more than 50 individual savers had contacted the consultancy saying they were unhappy with their pension provider and wanted to move all their funds into cryptocurrency.

Cartwright has been in discussions with two multi-employer pension funds about setting up Bitcoin funds for investors to opt in if they so choose, so the funds don’t lose members seeking cryptocurrency investments.

“They could see a lot of members switching to them . . . there would be some first-mover advantage,” Roberts said, adding that discussions were still in the early stages.

Australia's AMP, which manages superannuation funds, also uses Bitcoin to increase returns.

“The AMP portfolio has taken the plunge this year with a modest allocation to Bitcoin futures,” said Steve Flegg, senior portfolio manager at AMP. “We generally believe that while cryptocurrencies are risky, novel and not yet fully proven, they have become It’s too big and its potential is too great to continue to be ignored.”

Still, funds allocated to Bitcoin and other cryptocurrencies remain a minority in the pension industry, with advisers mostly reluctant to recommend the investments to clients.

In December, the U.S. Government Accountability Office warned that cryptoassets have “unusually high volatility” after identifying 69 cryptoasset investment options available to investors in retirement plans.

Daniel Peters, a partner in Aon’s global investments business, said: “We don’t think pension funds should allocate to cryptocurrencies – it’s highly volatile and we don’t see any robust valuation framework to justify its value “The way pension funds gain exposure is through hedge funds that have expertise and skills in the asset class.

“For these reasons, we fundamentally believe this should not be part of a pension fund's strategy unless they are allocated through a professional manager,” he said.