Pension funds struggle to gauge crypto exposure
Summary
- Following the FTX bankruptcy, some of the biggest U.S. public pensions say they are indirectly exposed to digital currencies
Public pensions in the U.S. have mostly shied away from digital assets, a sector whose Wild West ethos and extreme volatility are widely seen as bad fits for institutional investors that aim to protect retiree savings.
Yet many pensions have millions of dollars in exposure to the cryptocurrency asset class through investments in venture-capital funds that backed crypto companies.
Among the 20 U.S. pensions and sovereign-wealth funds with the largest private-fund holdings per WSJ Pro Private Equity data, just one—the $230 billion Florida State Board of Administration—said that it directly owns cryptocurrencies. But at least 10 have indirect exposure to the asset class through other investments, according to pension representatives and an analysis of their holdings.
Nine other systems said they couldn’t determine whether they have any crypto liability or didn’t disclose their exposure.
The Florida system, the largest crypto investor among these pensions, owned cryptocurrency worth $119 million as of June and had $84 million ofindirectinvestments in crypto businesses viafunds it has backed, a spokeswoman said. She added that the pension fund’s crypto investments had already returned more than seven times the money the pension originally put in.
Under U.S. law, pension funds are permitted to invest in digital assets. But government agencies discourage it. Earlier this year, the Labor Department said that retirement plans should be extremely careful in the crypto space.
Only a handful of public pension plans have fully embraced cryptocurrencies, and these funds have taken hits as the price of most digital assets has fallen this year. Bitcoin has lost more than 65% of its value this year, falling to about $16,500 Thursday.
Canadian pensions have taken larger direct stakes in the crypto sector. The Ontario Teachers’ Pension Plan, with assets of 242.5 billion Canadian dollars, equivalent to about $181.94 billion, stands to lose $95 million through its investment in crypto exchange FTX. A Quebec pension invested about $150 million in cryptocurrency lender Celsius Network LLC, which filed for bankruptcy earlier this year.
In the U.S., many pension plans are exposed to crypto through venture-capital funds, which have invested heavily in technology companies that cater to the sector. Venture capital invested $14.2 billion in crypto companies in the first half of this year and more than $32 billion last year, according to consulting firm KPMG LLP.
That has resulted in a tangle of links between crypto, venture firms and the pension systems, although these links may not show up in pension plans’ financial reports. For example, FTX, which filed for bankruptcy last week, was backed by a roster of private-equity and venture-capital firms including Sequoia Capital, Insight Partners, New Enterprise Associates and Lightspeed Venture Partners, among its more than 80 investors, according to PitchBook Data Inc., which tracks the private markets.
Some FTX investors have suffered large losses. Singapore’s state-owned Temasek Holdings Pte. Ltd.wrote down a $275 million stake in the company, while Sequoia Capital said it wrote off investments totaling $213.5 million held in two of its funds.
Six of the largest U.S. pension funds have indirect exposure to FTX, based on statements from pension representatives and an analysis of their holdings. Several others said they couldn’t determine whether they had financial ties to the Bahamas-based company.
The Pennsylvania Public School Employees’ Retirement System has $5 million in indirect exposure to FTX, a spokesman for the system said. While the $73 billion pension system doesn’t invest directly in cryptocurrencies, it has about $30 million in indirect exposure to crypto-related technology companies through its other investments, he said.
The Alaska Permanent Fund Corp., the state’s $74 billion sovereign-wealth fund, has exposure of about $4 million to FTX through its private-equity program, or about 0.03% of the program’s total assets, a spokeswoman for the fund said.
Many pension funds have also invested in publicly traded cryptocurrency companies, such as the exchange Coinbase Global Inc. Funds with exposure to public crypto companies include the California Public Employees’ Retirement System, the California State Teachers’ Retirement System, the New Jersey Division of Investment, the Pennsylvania State Employees’ Retirement System, the Los Angeles City Employees’ Retirement System and the Virginia Retirement System.
This story has been published from a wire agency feed without modifications to the text
