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Pension funds are dipping their toes into buying bitcoin, in a sign that even typically staid corners of finance are finding it hard to ignore the potential outsized returns from cryptocurrencies.
Pension schemes for the states of Wisconsin and Michigan are among the top holders of US stock market funds devoted to crypto, while some pension fund managers in the UK and Australia have also made small allocations in recent months to bitcoin using funds or derivatives.
Advisers say the surge in bitcoin last year, which more than doubled to touch $100,000, has spurred the interest of conservative trustees.
Crypto analysts predict it could double again this year with the arrival of a pro-crypto Trump administration. The president-elect has vowed to make the US “the bitcoin superpower of the world” and end a regulatory crackdown on the sector.
Matt Scott, a consultant at Mercer, which advises UK pension funds, said: “Since election day we have been getting a flood of queries in — trustees don’t like to think that there’s a hot asset class out there that they don’t know anything about.”
Most pension funds have turned to the regulated US exchange traded funds approved last year, which invest directly in crypto on investors’ behalf and track the price of tokens such as bitcoin and ethereum.
The State of Wisconsin Investment Board was the 12th biggest shareholder in BlackRock’s bitcoin ETF at the end of September, according to its latest filings, a holding that would now be worth about $155mn after the fund leapt 50 per cent since the start of the quarter.
Michigan is the sixth-largest shareholder in Grayscale’s ethereum ETF and its stake is worth $12.9mn, based on a November regulatory filing. It is also the 11th-largest holder in the ARK 21Shares Bitcoin ETF, run by investor Cathie Wood, and which is up 14 per cent since the election.
Pension funds’ move back into crypto follows some notable failures in the crypto market crisis two years ago. Canada’s Ontario Teachers’ Pension Plan wrote off a $95mn investment in failed digital currency exchange FTX when it collapsed in 2022. Caisse de dépôt et placement du Québec, Canada’s second-largest pension fund manager, conceded it went into crypto “too soon” when it wrote off a $150mn investment in crypto lending platform Celsius Network.
“There’s no doubt that the headwinds are disappearing . . . I think you’ll see more of this institutional adoption,” said Alex Pollak, head of UK and Israel at 21Shares, a Swiss cryptocurrency exchange traded product provider.
In the UK, pensions consultancy Cartwright said it had advised on its first bitcoin deal, with a small undisclosed £50mn pension scheme allocating about £1.5mn directly to bitcoin rather than through an ETF, in the hope that outsize returns might help plug its funding deficit.
Sam Roberts, director of investment consulting at Cartwright, said while the pensions industry was “slow moving” he expects this year to be “very interesting” in terms of schemes deciding to allocate more to crypto.
He said more than 50 individual savers had approached the consultancy saying they are not happy with their pensions provider and they would like their entire fund to be moved into crypto.
Cartwright has been speaking to two multiemployer pension funds about setting up a bitcoin fund for investors to opt into if they so choose, so that the funds would not lose members looking for crypto exposure.
“They could see a lot of members move to them . . . there would be a definite first-mover advantage,” said Roberts, who added that the discussions were still in early stages.
Australia’s AMP, which manages pensions funds, has also used bitcoin to juice returns.
“This year AMP portfolios took the plunge and made a modest allocation to bitcoin futures,” said Steve Flegg, a senior portfolio manager at AMP. “We generally thought that even though crypto is risky, new and not yet fully proven, that it had become too big, and its potential was too great to continue to ignore.”
Still, funds allocating to bitcoin and other cryptocurrencies remain a minority in the pensions industry, with consultants mostly reluctant to recommend exposure to their clients.
In December, the US Government Accountability Office warned crypto assets have “uniquely high volatility” after it identified 69 crypto asset investment options available to investors in retirement plans.
“We don’t think pensions funds should allocate to crypto — it’s highly 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 to get exposure was through hedge funds with expertise and skill in the asset class.
“We fundamentally don’t think this should be part of a pension fund strategy for those reasons unless they are allocated via a specialist manager,” he said.
