FTX collapse adds to 2022 woes for pension funds and investment firms

Following the bankruptcy of the cryptocurrency exchange FTXa growing number of pension funds and investment firms reveal that they have had direct or indirect exposure to Sam Bankman-Fried’s crypto empire, resulting in heavy losses for investors in the US and Canada.

It comes as many of those Wall Street pension funds and businesses have been decimated by the stock market crash of 2022, exacerbated by the Federal Reserve’s rate-tightening campaign.

The Missouri State Employees Retirement System (MOSERS) revealed in its latest updated portfolio estimates that it has tiny exposure to FTX. Since the pension fund invested in the BlackRock PE Co-Investment 2021 Fund, it had approximately $1.2 million exposed to the bankrupt exchange.

According to MOSERS, this represented 0.01% of its total portfolio of $8.2 billion.

The $75 billion Alaska Permanent Fund (AFP) placed its sovereign wealth funds in Sequoia Capital’s Global Growth Fund III, which had invested a small portion of capital in FTX. The bottom transferred $4 million to the group’s $15 billion private equity program, which then dipped into the investment fund.

Pennsylvania’s $73 billion public school employee retirement system had about $5 million in indirect exposure at FTX. This is in addition to the roughly $30 million in indirect exposure to crypto-related tech companies.

The Ontario Teachers’ Pension Plan (Teachers’) confirmed it invested $75 million in FTX in October 2021 and an additional $20 million in January 2022. The investments were made through its Teachers’ Venture Growth (TVG) to gain some exposure to digital assets and the fintech sector. It represented 0.05% of total net pension assets.

The office of the Ontario Teachers’ Pension Board is shown in Toronto, Canada, Sept. 28, 2021. (The Canadian Press/Cole Burston)

One of Canada’s largest public pension funds plans to write down its $95 million FTX investment by the end of the year.

“The financial loss from this investment will have a limited impact on the plan, given its size relative to our total net assets and our strong financial position. However, we are disappointed with the outcome of this investment, take all losses seriously and will use this experience to further strengthen our approach,” Teachers’ said in a statement. statement.

This comes months after the Caisse de depot et placement du Quebec announced that it would cancel its $150 million investment in the Celsius network.

Since 2012, more and more Canadian pension funds have gotten into cryptocurrency, including the Ontario Municipal Employees Retirement System, which has invested in cryptocurrency-related assets.

Private investment firms also saw their capital in FTX evaporate this month.

Capital Sequoia and Soft Bankfor example, wrote down the full $214 million and $100 million, respectively, on their FTX investments.

“We are in the business of taking risks”, Sequoia wrote in a message to investors. “Some investments will surprise on the upside, and some will surprise on the downside. We do not take this responsibility lightly and conduct extensive research and due diligence on every investment we make.

BlackRock, Tiger Global Management, Grayscale and Multicoin Capital are among other high-profile investors who have lost significant sums. Last year, BlackRock, Lightspeed Venture Partners and Tiger Global led the Series B-1 Funding Cycle which helped FTX raise around $420 million. It’s unclear how much the world’s largest asset manager invested in the funding round.

Will funds abandon cryptocurrency?

Because some market experts have warned that this could mean the demise of the crypto sector, it is expected to make public pensions more hesitant to invest in funds that have shifted money to anything. regarding cryptography.

But not everyone agrees, explaining that this debacle will prompt the government to impose more regulations on the industry, attracting more retail and institutional investors in the future. At the same time, it’s crucial to avoid “gut reactions”, says Nick Dazé, CEO of web3 SaaS.

“Regulators will use this as a starting point to accelerate the positioning and deployment of regulation. We have to be very careful here because while real regulation is needed at some level, we don’t want to see knee-jerk reactions producing untenable legislation,” he told The Epoch Times.

John Lo, Managing Partner of Digital Assets and Head of Omakase Strategy at Recharge Capital, agrees, saying the cryptocurrency landscape will look quite different in the coming months. According to Lo, there will likely be proposals to “curb the decentralization of the trampling.”

“Make no mistake about it, centralized players will continue to put the brakes on decentralization when given the chance, regardless of who the main character is right now. However, the rise of decentralized and autonomous solutions is inevitable,” Lo told The Epoch Times. “We are about to witness a David and Goliath moment that will pave the way for what finance, commerce and culture will look like in the years to come. The jar was shaken, but this time it’s for all the marbles.

Still, investors should pay attention to any investment firm that avoided big losses in 2022, Dazé added.

“For investors and investment firms that focus on crypto, anyone who has avoided the pitfalls of 2022 is a group to watch,” Dazé said. “Often successful investing is more about not losing and not hitting singles than it is about Grand Slams. Companies that have avoided these moments have a better grasp of industry fundamentals and inner workings than most.

Since the industry’s market capitalization peaked at more than $2.5 trillion in November last year, the total cryptocurrency market capitalization has lost around $1.7 trillion, according to Coin Market Cap.

Andre Moran

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Andrew Moran has been writing about business, economics and finance for over a decade. He is the author of “The War on Cash”.