Pension funds are getting into cryptocurrency investments

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Pension funds are getting into cryptocurrency investments

Pension funds are beginning to dabble in crypto investing, opening the door to a broader discussion about whether investment managers should embrace the risk profile of digital assets.

Driving the news: The Fairfax County Board of Trustees in northern Virginia recently authorized its $6.8 billion pension fund to begin investing in crypto lending, according to the Financial Times. reports.

Why is this important: The success or failure of pension funds allows them to distribute checks to retirees and affects the budgets of cities, counties, school districts and states that are required to pay pension contributions.

  • Cryptocurrency investments offer the promise of eye-popping returns, but also come with the risk of the exact opposite.

Reality check: For now, crypto does not represent a significant slice of retirement assets.

  • At Fairfax, managers have so far invested more than $55 million in crypto businesses, which represents less than 1% of their assets.
  • “If the numbers were much, much larger, that would be a concern,” Tom Kozlik, managing director and head of municipal research and analysis for HilltopSecurities, told Axios.
  • But “for now” it’s best categorized as part of a larger set of alternative investments.

The big picture: Pension funds across the country are feel pressure to bolster their returns as they face falling asset values ​​due to the 2022 stock market selloff and unrealistic investment return expectations.

  • National and local pension schemes are 77.9% financecompared to 84.8% in 2021, according to estimates published in July by Equablea non-profit organization with Republicans and Democrats on its board that advises governments on retirement issues.
  • “They had to start looking at more aggressive and riskier (investments),” Kozlik says. “They are looking for yield.”

To note : Several crypto lending companies have recently gone bankrupt, including Celsius Network and Voyager.

What we are looking at: Whether more pension funds are catching the crypto bug and how their initial investments are performing.

  • The value of Fairfax’s total crypto investments – which began in 2019 – fell by around 50% “due to this year’s market turmoil, but that would still leave the investment up” by 350% in the long term, reports the Financial Times.

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