Something that excites many in the crypto world in 2019 is the entrance of big institutional investors. But even then, many ruled out the possibility of pension funds investing in crypto assets. Unlike other institutional investors, pension funds are slow to try out any new forms of investments as they are more comfortable with the traditional risk-free options. This is due to the fact that many people depend on this decision for their retirement. The underlying volatility and the absence of regulation coupled with the lack of maturity of this class of assets makes crypto a high risk investment. Low returns on investment (ROI) from traditional assets have forced pension funds to search for additional classes of investments and crypto is starting to make more sense now.
Today, pension funds are facing the grim reality that inflation rate doesn’t correspond with returns they earn on their investments, which is why we could be looking at a future where many pension funds might not be able to provide sensible pension.
Blockchain Opportunities Fund
Morgan Creek is a North Carolina-based hedge fund. Founded by Mark Yusko, Jason Williams and Anthony Pompliano. Morgan Creek Digital, a subsidiary of Morgan Creek, announced on Tuesday that it has successfully raised money for its Blockchain Opportunities Fund. Morgan Creek Digital has secured what the company says is probably the first investment in the crypto assets coming from a U.S. pension fund. Two separate pension funds that collectively manage $1.2 billion in assets for the state’s police force and other employees are backing a $40 million investment in the Morgan Creek Blockchain Opportunities Fund, which in addition to backing some of the best-known startups in the space, plans to invest in cryptocurrency. Morgan Creek Digital initially sought to raise $25 million in funding but has now raised approximately $40 million and thus, far surpassed that number. The investors in the fund are the two public pensions mentioned before: a university endowment, a hospital system, an insurance company, and a private foundation. The fund will primarily make equity-based investments in seed-stage companies active in the blockchain space but it will also invest in security tokens and cryptocurrencies.
Morgan Creek Digital
This is not the first attempt by Morgan Creek to get into digital assets. In 2018, Morgan Creek Digital and crypto index provider Bitwise teamed up to launch a new index fund specifically aimed at institutional investors looking to enter digital asset market. The Digital Asset Index Fund currently offers the top 10 largest digital assets weighted by market capitalization to accredited and other major investors, while Bitwise is entrusted with managing the fund. According to its official website, the index fund is heavily concentrated toward Bitcoin, while offering smaller exposure to other major cryptos like Ether, EOS and Bitcoin cash, among others. In order to improve overall safety, the Assets stored by the fund will be kept in cold storage. These assets will be governed by a set of trade concentration limits, eligibility requirements which include custody qualifications, and pre-mine restrictions.
The investment though substantial only represent a fraction of the total value of the money these pension funds manage. This is similar to how many big banks have experimented with crypto. They are not certain of the outcome and hence is placing a safe bet by only investing small amounts thus reducing the overall exposure to crypto, but really does not want to miss out on the opportunity of bear market. This might trigger a domino effect where other pension funds start investing in crypto as well. This is what many in the crypto world are hoping for. Infusing of funds into the market is something that many need desperately as the fall of price has hit liquidity. The entry of pension funds might instill confidence for others too. Overall, this seems to be a positive event for the industry as a whole.
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