Yale Dives into Cryptocurrency | Chief Investment Officer

Believe it or not, David Swensen is dipping Yale’s toe into cryptocurrency.

The chief investment officer of the $29.4 billion endowment has invested an undisclosed amount in two separate cryptocurrency venture funds, Andreessen Horowitz and Paradigm, reports CNBC. Horowitz’ $300 million crypto fund had closed in June.

The implementation marks a key moment in the history of the volatile asset class, as large institutions have been absent from crypto denominations like bitcoin. Up to now, the support for the new currency has been mostly from retail investors and the occasional hedge fund. Billionaire George Soros’ family office, for instance, announced plans to trade the digital currency earlier this year.

But university endowments are different, as they are meant to support education. Swensen’s imprimatur could give virtual currency entrée to other such institutions.

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The asset class has had a wild ride over the past year, when crypto-mania ran wild as monumentally rapid gains turned many retailers into millionaires seemingly overnight. Bitcoin, the most popular cryptocurrency, neared $20,000 per coin in December.

Then, however, cryptocurrency ran into trouble in 2018. Since January, 50% of bitcoin’s value has been wiped out, as has 63% of all cryptocurrencies. Bitcoin now sits at $6,545 per coin.

Meanwhile, the infrastructure of trading the digital money has expanded, with an increase in crypto-focused funds to 389 from 227 this year. It has no shortage of supporters, like Mike Novogratz of crypto hedge fund Galaxy Digital. Some are even predicting bitcoin to hit upwards of $100,000 within a few years. Soros had once bashed the asset class, but has since changed his tune. Chase’s Jamie Dimon, Warren Buffett, and Bridgewater Associates’ Ray Dalio have all dismissed cryptocurrency as a bubble.

Either way, Swensen’s Yale investment model, which has stressed alternative assets, has logged a 20-year track record of 11.8% positive returns. So his going into cyber-currency could open the floodgates for adoption among the institutional investment world.

It is not known which cryptocurrencies the endowment invested in. Swensen was unable to be reached for comment, and Andreessen Horowitz declined comment.

Tags: Cryptocurrency, David Swenson, Endowments, Yale

A strong US equity market and rising bond yields helped boost the funded status of Canadian defined benefit pension plans to levels not seen in nearly two decades, according to reports from consulting firm Mercer and professional services firm Aon.

At the end of the third quarter, the solvency position of Canadian defined benefit pension plans climbed to 112%, up from 107% at the end of the previous quarter—its highest level since November 2000, according to the Mercer Pension Health Index, which represents the solvency ratio of a hypothetical plan.

The median solvency ratio of the pension plans of Mercer clients was at 102% at the end of the quarter, up from 99% at the end of the second quarter, and 97% at the end of 2017. Mercer said that more than 60% of Canadian pension plans are now fully funded, and less than 5% of plans are below 80% funded.

Mercer said the plans’ position increased in the third quarter thanks to a surge of 20 basis points in long-term interest rates during the last few weeks of September. It said a 100-basis point increase in interest rates typically results in a decrease in pension liabilities of 10% to 15%. The firm cited rising US and international equity markets as providing an additional boost, despite the Canadian equity markets continuing to lag.

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The US led global equity markets with a 7.7% return during the quarter in US dollar terms, or 5.8% in Canadian dollars, while developed market equities were also strong, with the MSCI World returning 5.4% in local currency terms. Emerging markets continued to show weakness, returning 0.1% in local currency terms as trade war tensions, tariffs, and currency crises hindered performance.

Mercer said the sharp rise in funded positions over the past few years, and the changes to funding rules in Ontario and Quebec, have caused many plan sponsors to revisit their risk management strategy.

“Some plan sponsors, particularly those that are not fully funded and that remain open to new members, feel emboldened by the new funding rules to maintain or even increase investment risk,” said Mercer. “On the other hand, this seems like a particularly opportune time for sponsors of closed and frozen defined benefit plans to take risk off the table, either by changing the asset mix or through risk transfers.”

At the same time, professional services firm Aon’s quarterly median solvency ratio stood at 103.2% as of Oct. 1, up three percentage points from the previous quarter, and its highest level since the quarterly Median Solvency Ratio began in 2002.

“That’s really good news, but it also presents a great opportunity for pension plan sponsors to ask themselves some tough questions about risk,” William da Silva, retirement practice director at Aon, said in a release. “For instance: is their asset strategy optimized based on new funding rules in several jurisdictions? Can risk be further managed by making strategic contributions? And with funded status in such a healthy place, have sponsors taken a new look at plan settlement to further their strategies?”

Tags: Canada, Defined benefit (db) pension plans, Equities, Mercer, Pension