Two of Virginia’s top pension funds; Fairfax County Employees’ Retirement System (ERS) and Fairfax County Police Officers Retirement System (PORS) are looking to add crypto to their funds. The pension funds are waiting for approval to invest directly in investment funds providing Bitcoin and other crypto derivatives.
Once the board approves the plan, the two pension funds will invest $50 million in the Parataxis Capital Management fund.
This is not the first time the two funds have ventured into the crypto market. They first came into the spotlight in 2018 after investing a portion of the fund into the crypto space for the first time. PORS invested $11 million (0.8% of holdings), while ERS invested $10 million (0.3% of holdings) into the Morgan Creek Blockchain Opportunities Fund. They then followed this up with another $52 million investment the following year.
Most of these funds, however, are invested in companies dealing in cryptocurrency tech. Only 15% of the whole investment is a direct investment in cryptocurrencies. The latest move to increase their placements in crypto is more of a statement investment move in the crypto world.
With cryptocurrencies becoming a viable investment, it’s easy to see why these funds would want to increase exposure to crypto. The fund believes there are more opportunities to come into the crypto world as the market matures. Katherine Molnar, chief investment officer for PORS speaking to Bloomberg, said crypto is an area that will continue to grow in adoption and interest. While that might be inefficient enough, it provides alpha opportunities to take advantage of.
While several other pension funds are also pursuing crypto investments, few have been going public with their portfolio information.
Should pension funds invest in crypto?
The rate of pension funds investing in crypto is likely to increase with Grayscale betting they will continue to increase their exposure. The main investment option for pension funds over the years was to look for higher investment yields through private equity. However, private equities have performed abysmally in recent years.
While there are various possible reasons for the decline in returns on private equities, it’s most likely that the industry has matured. In this case, it becomes hard to find attractive investments at low-cost prices.
At the same time, cryptocurrencies have been performing quite well in recent years. Bitcoin has grown by more than 340% since the start of the last year. It has since become a mainstream asset with both individual and institutional investors taking up the coin.
It is therefore only logical that pension funds would also like to get into the crypto market. However, the risks that made it a less ideal option like volatility concerns and lack of regulation still remain.
Given that pension funds are all about safeguarding the contributors’ interests, the funds must find the safest way to get exposure to crypto. They can explore different investing methods like using crypto derivatives, however in most cases a buy and hold strategy is the safest bet.