In the weeks and months to come, you’ll be hearing more about public pension cryptocurrency direct … [+]
The $100 billion Ohio Teachers pension fund recently responded to a public record request from a former board member indicating it had no records in its possession regarding its cryptocurrency investments. Later, in response to a media inquiry regarding crypto investments identified in its portfolio, officials at the state pension responded, “No comment.” So much for transparency and public accountability.
In response to a Forbes article I wrote October 3rd discussing a recent CFA
“STRS Ohio does not directly invest in cryptocurrency and has been unable to identify any public records in its possession which are responsive to your request.”
The two major takeaways here (neither of which are surprising given prevailing public pension practices):
First, the pension says that since it does not invest directly (emphasis added) in crypto, it does not have any records of such investing in its possession (emphasis added). That is, like all public pensions I have ever investigated (and contrary to prudent fiduciary practice), the pension does not require its underlying fund managers disclose their riskiest portfolio holdings to the pension. Hence, the pension, conveniently, is neither told if it indirectly invests in crypto, nor asks. (In my experience, alternative investment consultants often advise public pensions that to avoid embarrassment aka “headline risk” it’s best to agree to be kept in the dark as to alternative investment fund portfolio holdings and strategies.)
Second, the STRS Ohio response does not address investments in companies who have exposure to cryptocurrencies. (It appears McGreevy may have neglected to ask about indirect cryptocurrency investments included in the CFA Institute study.)
In addition to circulating his public records request to other retirees in an email, McGreevy included a blog post written by Hank Kim, Executive Director and Counsel for NCPERS (an organization substantially funded by Wall Street money managers and dedicated to defending prevailing public pension practices—including the bad and ugly), that was posted on the organization’s blog specifically in response to my Forbes article.
Kim, who cannot possibly know for certain (due to the fact that his organization’s members themselves do not know) assures public pension stakeholders in his blogpost, “Siedle’s claim that your US state pension is gambling away a portion of your hard-earned retirement savings on cryptocurrency is simply unfounded.” Says Kim cavalierly, “As policymakers develop regulatory frameworks around digital currencies, perhaps US public pensions will invest as part of their long-term diversification and risk management strategies. Who knows, maybe one day?”
Far be it for me to speculate on what wild schemes our nation’s public pensions—often regarded by Wall Street as “the dumbest investors in the room”—might gamble on next.
Former STRS Ohio board member McGreevy concludes the email he circulated to retirees stating with confidence that—apparently based upon his query of the pension and Kim’s baseless assurances to the public—“It would seem you can remove cryptocurrency from your list of possible concerns regarding STRS investments.”
Not so fast.
More recently, on December 2nd, Buyouts Insider published an article indicating that STRS Ohio “took a hit” on cryptocurrency (FTX exposure) through a Thoma Bravo fund in which it invested. When asked by the publication, STRS Ohio—this time—reportedly responded “no comment.” So much for public accountability regarding pension investments.
With respect to Kim, in addition to his duties at NCPERS, he is also Vice Chair of the Fairfax County Uniform Retirement System. While the pension he oversees also has invested in two Thoma Bravo funds, it is unclear whether these funds (or any of the other funds in which the Uniform Retirement System has invested) are in cryptocurrency or crypto-related companies.
However, the Executive Director of the Fairfax County Virginia Retirement Systems publicly acknowledged that both the Fairfax County Employees’ and Police Officers Retirement Systems “have invested in something called Blockchain Technology.”
The Police Officers Retirement System reportedly has a staggering over 7% of assets invested in crypto-related holdings spread across venture capital and hedge fund holdings as well as “yield farming” through funds that provide short-term loans to crypto-related firms.
In response to the question, “Is This A Risky Investment?, the Executive Director says, “All investments involve risk and this investment is no different.” No different?
Evidently the Executive Director thinks he’s a whole lot smarter than the world’s greatest investor, Warren Buffett who stated back in 2020 that he was staying away from cryptocurrencies.
“Cryptocurrencies basically have no value and they don’t produce anything,” he told CNBC’s Becky Quick in a Squawk Box interview. “I don’t own any cryptocurrency and I never will,” he added.
In light of Buffett’s comments, it should be obvious that crytocurrency (which has no value) is very, very different from “investments” typically held by pensions.
Other investment and regulatory compliance experts have questioned public pensions diving into crypto. John Reed Stark, a consultant who questioned the CIO about the Fairfax County police pension’s crypto-related holdings, is a crypto critic and former head of the Securities and Exchange Commission’s Office of Internet Enforcement. “To me, this is perhaps the most reckless investment” made by a public fund in decades, he wrote in a LinkedIn post after an email exchange with the CIO. “The contagion of FTX has only begun to spread,” Stark told MarketWatch. His interpretation of the CIO’s position is that “you’re standing inside a burning building and thinking everything’s going to be okay.”
In the weeks and months to come—despite public pension stonewalling public records requests—hundreds of millions in public pension cryptocurrency direct and indirect losses will be exposed. Brace yourselves.
Post expires at 10:01pm on Wednesday March 8th, 2023