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Two U.S. pension funds break the winter ice by investing in Cryptos


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Two U.S. pension funds break the winter ice by investing in Cryptos

Crypto enthusiasts have long anticipated the day when large institutional investors would jump onboard the Crypto train, but a host of concerns related to potential price manipulation, volatility, liquidity, and safety have always stood in the way. It is known that many such investors have gone through the backdoor, using traditional brokers with an OTC-desk. These “players” were thought to be Wall Street types, bankers, and hedge fund managers, but never did anyone conceive of pension funds joining the party.

Recent news is that, not one, but two U.S. pension funds in Fairfax Country, Virginia, have taken the plunge into Cryptos by being the “anchor investors in a new $40 million venture-capital fund”, according to an announcement put out by Morgan Creek Digital (MCD), an affiliate of the investment manager Morgan Creek Capital Management LLC. The founder of MCD, Anthony Pompliano, did not release much in the way of details, but he did mention that an insurance company, a university endowment and a private foundation would also be investing in the new fund.

While Katherine Molnar, chief investment officer of one of the funds, spoke eloquently about the promise of blockchain technology, using such glowing phrases as “emerging opportunity” that also offers an “attractive asymmetric return profile”, Pomplano added on a phone interview:

There’s a belief in the institutional world that if the industry will be around for a long time, it will be very valuable. The smart money is not distracted by price but looks at the long-term trends, and believes they’re betting on innovation as a great way to deliver risk-mitigated returns.’

The top 300 pension funds in America manage in excess of $6 trillion in assets, but no one in the cryptocurrency industry believes that even one basis point of those funds has been behind any crypto development efforts to date. The reason is that pension funds have a level of conservatism that constrains their asset allocations to only the safest and soundest investment categories. Regulations at all levels of government restrict how these funds are managed, and each fund typically has very limited investment authority.

Chuck Lauber, a portfolio manager at First National Fund Advisors, gave these words of explanation:

They’re mired in red tape which results in most of them being ‘late to the game’ in the realm of investment opportunity.” Lauber did acknowledge that a few funds do like to experiment with “emerging class assets”, but he added: “Most [pension funds] unfortunately, are not. Pro: ‘new’ asset class could help lower overall correlations. Con: lack of knowledge and reach for yield makes PFs the potential bag holders.

The two Virginia pension funds are not the first to tiptoe into Crypto-Land. It is known that Yale University, the second-largest endowment fund at the college level, did participate in a digital assets fund last year. Rumors that others were about join in were swirling about last December, but no sources could be confirmed. The MCB fund will also invest in equities related to digital assets and blockchain development companies, but it will “hold a small percentage of its value in liquid cryptocurrencies, such as Bitcoin.”

Back in December when rumors were circulating, Pompliano took to his blog and wrote:

It will take time for pension funds to get comfortable with investing in bitcoin. We need to educate multiple stakeholders and demystify this nascent industry. When one makes the decision, it will create a cascading effect that leads to hundreds of them jumping in.

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Two U.S. pension funds break the winter ice by investing in Cryptos

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