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Pension funds are venturing into buying bitcoin, a sign that even the usually staid corners of finance are finding it hard to ignore the potential outsized returns from cryptocurrencies.
The pension systems for the states of Wisconsin and Michigan are among the largest owners of US equity mutual funds cryptowhile some UK and Australian pension fund managers have also made small allocations to bitcoin using funds or derivatives.
Advisers say bitcoin’s surge last year, which more than doubled to $100,000, piqued the interest of conservative trustees.
Crypto analysts predict that it could double this year with the arrival of a pro-crypto Trump administration. The president-elect has promised to make the US the “bitcoin superpower of the world” and end the regulatory stranglehold on the sector.
Matt Scott, a consultant at Mercer, which advises UK pension funds, said: “We’ve been getting a flood of inquiries since election day – trustees don’t like to think there’s a popular asset class out there that they don’t know anything about.”
Most pension funds have turned to regulated US exchange-traded funds approved last year, which invest directly in cryptocurrencies on behalf of investors and track the price of tokens such as bitcoin and ethereum.
The Wisconsin State Investment Board was the 12th largest shareholder in BlackRock’s bitcoin ETF at the end of September, according to its latest filings, a holding that would now be worth about $155 million after the fund jumped 50 percent since the start of the quarter.
Michigan is the sixth-largest shareholder in Grayscale’s ethereum ETF, and its stake is worth $12.9 million, based on a November regulatory filing. It is also the 11th largest holder of the ARK 21Shares Bitcoin ETF, run by investor Cathie Wood, which is up 14 percent since the election.
The return of pension funds to the crypto market follows some significant setbacks in the crypto market crisis two years ago. Canada’s Ontario Teachers’ Pension Plan wrote off a $95 million investment in failed digital currency exchange FTX when it failed in 2022. Caisse de dépôt et placement du Québec, Canada’s second-largest pension fund manager, admitted went into cryptocurrencies “prematurely” when it wrote off a $150 million investment in cryptocurrency platform Celsius Network.
“There is no doubt that the winds are dying. . . I think you will see more of this institutional adoption,” said Alex Pollak, head of UK and Israel at 21Shares, a Swiss provider of cryptocurrency exchange-traded products.
In the UK, pensions consultancy Cartwright said it was advising on its first bitcoin deal, with a small undisclosed £50m pension scheme allocating around £1.5m directly to bitcoin rather than through an ETF, in the hope that excessive returns could help close the financing deficit.
Sam Roberts, director of investment advice at Cartwright, said he expects this year to be “very interesting” even though the pensions industry is a “slow mover” in terms of schemes choosing to allocate more to crypto.
He said more than 50 individual savers had approached the consultancy saying they were unhappy with their pension provider and would like their entire fund to move into cryptocurrencies.
Cartwright has been talking to two multi-employer pension funds about setting up a bitcoin fund that investors could opt into if they so choose, so the funds don’t lose members seeking exposure to cryptocurrencies.
“They could see that many of their members were moving.” . . there would be a definite first-mover advantage,” said Roberts, who added that discussions are still at an early stage.
Australia’s AMP, which manages pension funds, has also used bitcoin to boost returns.
“This year, AMP’s portfolios took a big step and modestly allocated bitcoin futures,” said Steve Flegg, senior portfolio manager at AMP. “We generally thought that while crypto is risky, new and not yet fully proven, it has become too big and its potential too great to continue to be ignored.”
However, funds allocated to bitcoin and other cryptocurrencies remain a minority in the pension industry, and consultants are generally reluctant to recommend exposure to their clients.
In December, the US Government Accountability Office warned that crypto assets have “uniquely high volatility” after identifying 69 crypto asset investment options available to pension plan investors.
“We don’t think pension funds should be allocating to cryptocurrencies – it’s very volatile and we don’t see any robust valuation framework that can justify the value,” said Daniel Peters, a partner in Aon’s global investment practice, who added that a better way for pension funds become exposed were hedge funds with expertise and skill in the asset class.
“Basically we don’t think this should be part of a pension fund’s strategy for those reasons unless they are allocated through a specialist manager,” he said.
