Where pension funds stand today on crypto investments 

As pension plans still try to classify crypto token exposure, such funds could target “infrastructure” plays in the space, crypto investment firm exec says

article-image

Ivan Popovych/Shutterstock modified by Blockworks

share

As one pension fund reveals a new crypto-related investment, others may soon follow. Though allocations are likely to follow ample due diligence and could be limited to certain categories, industry participants say. 

The investment arm of London-based M&G plc invested $20 million Global Futures & Options Holdings (GFO-X), the company said Sunday. GFO-X is the UK’s first centrally-cleared crypto derivatives trading platform venue regulated by the Financial Conduct Authority, it noted.

M&G plc — with roughly five million investment, insurance policy holders and pension customers — made the allocation on behalf of the Prudential With-Profits Fund. The company managed 332 billion euros ($357 billion) in assets as of June 30.

The investment comes after pension funds, including the retirement plans of US aerospace and defense firm Lockheed Martin, were reportedly backing crypto broker Hidden Road.

A CFA Institute survey in April 2022 found that 94% of state and government pension plan sponsors reported investing in crypto. The report, which did not specify the type of crypto-related investments respondents were allocating to, also found 62% of corporate defined benefit plans were putting capital toward the sector.

But particularly after the collapses of several large industry players, pension funds must carefully assess the risk and rewards of investing in crypto assets, according to CK Zheng, co-founder of crypto hedge fund ZX Squared Capital.

“Given the nature of their prudent investor bases, most of them have little or no exposure to cryptos due to the market volatility, regulatory and reputational concerns,” he told Blockworks.

Such caution comes as several pension funds got caught up in the bankruptcies of Celsius and FTX over the last two years.

Canadian pension fund manager Caisse de dépôt et placement du Québec (CDPQ) had invested $150 million into Celsius in October 2021 — less than a year before the crypto lender filed for bankruptcy the following July. 

The Ontario Teachers’ Pension Plan Board said in November 2022 that the fund it was overseeing had invested $95 million in Bahamas-based FTX and the exchange’s US subsidiary through its venture arm, Teachers’ Venture Growth (TVG).

In the wake of such crypto entity failures, pension funds are likely to continue requiring more due diligence before investing in the space, Zheng said. He added, however, that such funds are likely to be attracted to the segment.

“As bitcoin has the highest Sharpe ratio risk adjusted returns among all the major asset classes through the last decade, pension funds definitely want to have certain allocation to crypto as a way of diversification,” Zheng argued. “We expect a lot more pension fund investments after the BlackRock [and] Fidelity spot bitcoin ETFs get approved by the SEC early next year.”

While BlackRock and Fidelity are the largest financial players seeking to launch a spot bitcoin ETF, they represent just two of more than a dozen issuers vying to bring such a product to market. 

The US Securities and Exchange Commission is set to rule on a proposed bitcoin ETF by Ark Invest and 21Shares by Jan. 10 — a date by which some industry watchers expect the regulator to also decide the fate of other similar applications. The SEC has never approved ETFs that have directly invested in BTC, and could choose to again deny them. 

Read more: Spot bitcoin ETF would be ‘final seal of approval’ for institutions: Cathie Wood

Dan Hoover, chief operating officer at Castle Funds, said conservative pension plans could also — for the time being — focus on infrastructure plays in the crypto space. These could include putting capital into derivatives markets, clearing organizations or other “capital-intensive parts of the trading value chain,” he noted.   

Such investments are more likely to be made through funds than directly, he added — a trend Hoover said was common during the last wave of institutional crypto investment. 

“Regarding direct investment into tokens, I think that pension funds are still trying to classify the exposure,” he said. “It’s not a traditional asset class, so it doesn’t fit well into their asset allocation models and policies.”

M&G cited “an evolving and maturing regulatory landscape for digital currency assets” in its Sunday investment announcement. Such crypto regulatory clarity has lagged in the US.  

The US Department of Labor has warned plan fiduciaries “to exercise extreme care” before considering adding a cryptocurrency option to a 401(k) plan’s investment menu, Hoover noted.

He added: “At least in the US, the guidance from the Department of Labor regarding crypto options in 401(k) plans makes it clear that plan sponsors face significant skepticism from their primary regulator.”


Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter.

The Lightspeed newsletter is all things Solana, in your inbox, every day. Subscribe to daily Solana news from Jack Kubinec and Jeff Albus.

Tags

Upcoming Events

Salt Lake City, UT

MON - TUES, OCT. 7 - 8, 2023

Blockworks and Bankless in collaboration with buidlbox are excited to announce the second installment of the Permissionless Hackathon – taking place October 7-8 in Salt Lake City, Utah. We’ve partnered with buidlbox to bring together the brightest minds in crypto for […]

Salt Lake City, UT

WED - FRI, OCTOBER 9 - 11, 2024

Pack your bags, anon — we’re heading west! Join us in the beautiful Salt Lake City for the third installment of Permissionless. Come for the alpha, stay for the fresh air. Permissionless III promises unforgettable panels, killer networking opportunities, and mountains […]

recent research

Research Report Cover Vertex.jpg

Research

The proliferation of new perp DEXs has led to fragmented liquidity across various DEXs and chains. Vertex, known for its vertically-integrated DEX that includes spot, perpetual, and integrated money markets, is now tackling cross-chain liquidity fragmentation through horizontal integration with the launch of new Edge instances. Vertex's integrated offerings and cross-margined account structure amplify the benefits of new instances: native cross-chain spot trading, optimized cross-chain basis trading, consistent interest rates, reduced bridging friction, and more.

article-image

Partnering with EtherFi and Angle, the fully on-chain perp DEX features bespoke collateral

article-image

Sponsored

Gavin Wood introduced the next evolutionary step for the Polkadot network: the Join-Accumulate Machine, or JAM

article-image

The side events were the places to be at Consensus 2024, according to attendees

article-image

Also, who’s come out swinging in the spot ether ETF fee war — and who could undercut them

article-image

I know it is not in their nature, but US regulators could learn a lot by researching the digital asset frameworks that overseas regulators have already gotten right

article-image

Also, the ETF hype train can count out at least one member