Bitcoin Projected as Solution to Ongoing Private Pension Crisis
Private pension fund managers should consider dipping their toes into bitcoin, believes Mark W. Yusko.
The Morgan Creek Digital co-founder lately projected the cryptocurrency as a mean to balance the risks associated with private pension funds. The recommendation came after the pension industry posted its second-worst performance since 1950 in the fourth quarter of 2018, exposing millions of retirees to a financially unstable future.
“Pensions have precisely wrong Asset Allocation at the precisely wrong time (again) things will get truly ugly wrt to funding levels & ability to honor commitments when valuations mean revert.”
Pensions have precisely wrong Asset Allocation at precisely wrong time (again…)
things will get truly ugly wrt to funding levels & ability to honor commitments when valuations mean revert…
— Mark W. Yusko (@MarkYusko) April 8, 2019
The statement was further clarified by Yusko’s partner at Morgan Creek and a renowned bitcoin bull, Anthony “Pomp” Pompliano. In his recently published newsletter, Pomp wrote that a majority of private pension funds were highly concentrated on equities. He named Japan’s Government Pension Investment Fund, the world’s largest pension fund, for keeping about 50-percent of their assets in global equities. As a result, the fund had already lost about $136 billion in Q4 2018, leading to a 9.1-percent quarter-loss.
“One of the most conservative capital allocators in the world has a portfolio that is constructed in such a way that they experienced uncommon levels of volatility and almost lost a double-digit percentage of their assets in 90 days,” explained Pomp.
Allocating 1% Portfolio to Bitcoin
Pomp reiterated Yusko’s stance about allocating a portion of pension fund portfolios to bitcoin, adding that they would reduce the overall risks profile because of its low correlation with the mainstream markets.
“Adding the low correlation and asymmetric nature of Bitcoin and crypto to these pension portfolios should actually decrease the portfolio’s risk profile, rather than increase it based on modern portfolio theory,” Pomp stated. “A simple 1% allocation has the potential to materially negate any losses that could be experienced through an equity market fall.
The comments appeared despite the crypto market’s strong correlation with the US stock market last year. The Federal interest rate hikes in 2018 allegedly withdrew a huge amount of capital from both equities and crypto market. The Q4 was not just bad for stock markets but it was equally depressive for the cryptocurrencies.
Most institutional investors still kept their distance from the 10-year old, $92 billion bitcoin market because of it low exposure to regulations. The cryptocurrency market’s collapse in 2018 didn’t help its case either. Institutions are now waiting for more clarifications from regulators. At the same time, they await a better infrastructure to speculate on cryptocurrencies before they make their first move into the nascent market.
That explains why the pension fund industry decided to stay away from the crypto market, barring a few examples. Two pension funds in Virginia, for instance, lately invested in a venture capital fund that focuses on early-stage blockchain startups and cryptocurrencies.
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