Old Meets Young: Pension Funds and Crypto Investment

To the fanfare of vindication, the news dropped last week that two public pension funds were anchor investors in a blockchain fund managed by Morgan Creek.

It echoed the chorus of jubilation that greeted the news late last year that Yale Endowment fund was dipping its sizeable toe into the blockchain sector via an investment in two crypto funds.

These pension funds are not investing in cryptocurrencies, they are investing in a blockchain venture fund, which will mainly take equity positions in startups.

It is not at all unusual for a pension fund to invest in venture capital.

It's worth noting that these are not just any pension funds.

The two investing pension plans are respectively only 70 percent and 85 percent funded - they don't have enough assets to meet their expected future liabilities.

In 2017, the median funding ratio of public pension plans in the US was just over 70 percent - some states are at 30 percent.

Better returns are becoming less of a "Nice to have" and more of an imperative - this means that the risk profile of pension funds is likely to change over the coming years, which in turn will encourage managers to look more closely at alternative investments with low correlation.

It is also significant, but not surprising, that the first pension fund forays into blockchain investment came from the public sector.

While we can't conclude that "The institutions are here" with this news - it's not the turning point it may initially seem - we can expect to see more announcements like this as public pension funds around the US decide that blockchain-based investments, including crypto assets, have an acceptable - perhaps even desirable - risk profile.