Pension Fund Invests in Blockchain — a Turning Point?
The first US-pension fund has invested in blockchain technology. As pension funds are among the most conservative investors, this is a positive sign for institutional crypto adoption; but it’s not a reason to get carried away quite yet.
Financial services giant Morgan Stanley declared cryptocurrencies an institutional asset class in October 2018. The announcement kicked off the debate around institutional crypto adoption.
Since then, everyone has been watching out for signs of institutional investors moving into digital assets. Understandably, with the crypto bear market ongoing for more than a year, we’re all looking for the light at the end of the tunnel. And indeed, an influx of institutional money could lift crypto markets to an entirely different level.
Then, in mid-February, crypto investment firm Morgan Creek Digital made headlines when it raised $40 million. The excitement came from the fact that a pension fund from Fairfax County, Virginia, was an anchor investor in the fund.
The most conservative investors invest in digital assets
Pension funds moving into crypto is a big deal. They are among the most conservative investors in the market and have to comply with strict rules, regulations, and procedures. Therefore, it’s extremely difficult to get pension funds to invest in a new asset class.
If a pension fund invests in crypto, it will conduct solid due diligence to get permission for the investment. Hence, this is not just some fund taking a shot at crypto — there is no gambling in the pension fund world. This is a conservative investor viewing digital assets as a safe enough asset class. Also, pension funds usually invest in the long term, meaning the Fairfax County Fund acknowledged the long-term growth potential of digital assets.
The other reason why this is good news is that most pension funds follow similar investment guidelines and conservative fund managers tend to move as a pack. Thus, it’s likely that other funds are also looking into crypto and come to the same conclusion. If a flood of pension fund money is flowing into digital assets, it will certainly give the market an enormous boost.
It’s more about blockchain than cryptocurrencies
Although pension funds starting to move into digital assets is a sign that crypto markets are getting more mature, it’s too early to celebrate. With $21 million, the amount invested is small. It represents not even 0.3 percent of the fund’s total assets under management.
Also, this is more about blockchain technology than about cryptocurrencies. Most of the money was invested into a blockchain venture fund which invests into startup equity. The fund can only invest 15 percent of that amount in crypto assets, that’s just about $3 million, a drop in the ocean. Hence, this is really more a sign that pension funds are bullish about blockchain technology, but not necessarily cryptocurrencies.
It is also not unusual for pension funds to invest in venture capital. The above-average returns fit well to a pension portfolio, especially considering that other asset classes have not performed great recently.
Conclusion: Institutional investors are ready for blockchain investments
To sum it up, there are three conclusions: Firstly, the investment is too small to call this a turning point, it’s unlikely that there will be a huge flood of pension money coming soon. Secondly, institutional investors are more interested in the growth prospects of blockchain technology than cryptocurrencies as an investment vehicle.
Thirdly, and that’s the real bright side of this story, blockchain has appeared on the radar of even the most conservative guys out there. If pension funds consider blockchain a worthwhile investment, it’s safe to say that there are a whole lot more investors waiting in the starting gates. Not necessarily pension funds, but those that are willing and able to take higher risks.
