The latest rumor circulating in the investment industry is that pension funds are buying crypto. Is a multi-million dollar pension fund finally prepared to give investors exposure to cryptocurrencies? And if so, what will this mean for the burgeoning asset class?
Typical Pension Fund Investment Strategy
The largest 300 pension funds collectively hold $6 trillion in assets. It is highly unlikely that a global pension and endowment fund has engaged in crypto investing in 2018. Why? Well one obvious reason is due to the funds being subject to heavier saver or investor protection regulations. Pension funds have large amounts of cash to invest and are the major investors in listed and private companies. Primary asset classes used for the investment of pension funds is equities, property, bonds and cash. Crypto is still too volatile and not regulated enough for the likes of a pension fund. That is all starting to change however.
Chuck Lauber, a portfolio manager at First National Fund Advisors, explained that pension funds in the U.S. are public entities, and as such “they’re mired in red tape which results in most of them being ‘late to the game’ in the realm of investment opportunity.”
Some pension funds are at the cutting edge of making smart investments in emerging assets classes, and crypto certainly falls into that category. “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,” said Lauber.
Rumors Circulate of Pension Funds Buying Crypto
Pensions now buying cryptos
— zerohedge (@zerohedge) December 28, 2018
Zerohedge runs a markets-focused blog owned by ABC Media Ltd. It recently tweeted that pension funds are buying crypto, but was unable to back up this claim with a credible source.
It’s no secret that the performance and growth of pension funds is slowing down. Thanks to low interest rates, looming inflation, and slow growth, the future of retired populations could be at risk. The economics of retirement funding is at breaking point.
Anthony Pompliano, aka Pomp, is the founder of Morgan Creek Digital, an asset management firm backed by multi-billion dollar investment advisor Morgan Creek Capital Management. Pomp recently blogged on why he believes pension funds should buy Bitcoin.
“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,” writes Pompliano.
Bitcoin Outperform Traditional Assets
According to Pompliano, the modern portfolio theory to support investing in bitcoin is strong. He states that BTC has been the best performing asset over the last 10 years.
“[Bitcoin] has experienced a 1,300,000x+ increase in value from $0.003 to ~$4,000 today. It has beat the S&P 500 for the last 10 years, the last five years, and the last two years. As a fixed supply asset, I believe bitcoin will continue to outperform traditional assets in the future as demand continues to increase too,” writes Pompliano.
If Pomp’s bullish thesis proves true, and Zerohedge’s assertion is correct, we may not have long to wait before the first major pension fund reveals it has acquired a cryptocurrency portfolio.
How likely is it that pension funds will turn to cryptocurrency investment in 2019? Share your thoughts in the comments section below.
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