Digital assets are not commonplace in the portfolios of institutional allocators, but one unnamed U.K. pension fund has made a 3% allocation to bitcoin, according to pension adviser Cartwright Benefit Consultants Ltd., which advised on the allocation.
The allocation, made in October, is the first of its kind among defined benefit plans in the U.K. According to a Cartwright news release, trustees of the plan, in consultation with Cartwright, made the 3% allocation, reflecting the plan’s long investment time horizon.
“Trustees are increasingly looking for innovative solutions to future-proof their schemes in the face of economic challenges,” said Samuel Roberts, a director of investment consulting at Cartwright, in a statement. “This Bitcoin allocation is a strategic move that not only offers diversification, but also taps into an asset class with a unique asymmetric risk-return profile.”
Cartwright said the firm hopes this is the beginning of a trend in which U.K. pensions allocate to the asset class, catching up with the increasing number of institutional investors around the globe who are already invested in or are exploring allocations to cryptocurrency.
While the number of allocators invested in crypto is small, their numbers are growing. In May, the State of Wisconsin Investment Board added $160 million in bitcoin ETFs to its portfolio. The Michigan Retirement System holds $6.6 million in bitcoin ETFs and $10 million in a number of Ethereum ETFs, per a November 4 SEC filing.
While bitcoin and other cryptocurrencies are volatile assets, making them less attractive for risk-averse institutional investors, Cartwright sees a risk-averse strategy to bitcoin for long-term, liability-driven investors.
“By combining a highly secure custodial solution with a mechanism to quickly trim profits as they arise, we’ve opened the door for risk-averse pension schemes and other institutional investors to benefit from Bitcoin’s potential growth whilst managing volatility within a secure strategic framework,” said Steve Robinson, Cartwright’s head of investment implementation, in a statement. “Cartwright expects an institutional adoption curve similar to when pension schemes started investing in equities in the 1970s, or high-yield bonds in the 1980s, or [liability-driven investments] in the 2010s.”
The bitcoin in the pensions’ portfolio is held on-chain with three institutional custodians using a multi-signature approach, Roberts said via email, adding that the approach is more secure than using ETFs.
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Tags: Asset Allocation, Bitcoin, Cartwright Benefits, Cryptocurrency, Samuel Roberts, Steve Robinson