Apr 8, 2019 • 4M

Pensions are in big trouble & Bitcoin can save them

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Private pension funds may be in more trouble than you think.

In Q4 2018, these funds realized the second largest percentage loss in assets since the 1950’s and the largest loss since 2008. As Tavi Costa pointed out on Twitter, the more than 5% drop in assets leads many to believe that the retirement funds of tens of millions of people are likely to be exposed to a much higher degree of risk than previously understood.

Take Japan’s Government Pension Investment Fund, the world’s largest pension fund, who has ~50% of their assets in global equities. During Q4 2018, they saw a 9.1% drop in assets, which is about $136 billion. Read that again….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.

It is no secret that equity valuations are incredibly high and we experienced the longest bull market in history over the last few years. But no one should be investing based on past performance, but instead focusing on what is likely to happen in the future. As my partner Mark Yusko says, “Humans do two things really well — they buy what they should have bought and they sell what they are about to need.”

The highly concentrated equity portfolios of many pensions is a scary scenario that will turn ugly really fast when valuations begin to return closer to long term averages.

So what should these institutions do? As I have been saying for months, they need to immediately evaluate the option of gaining exposure to Bitcoin, cryptocurrencies, and the blockchain industry. The assets have proven to be low correlation to date and have an asymmetric return profile. A simple 1% allocation has the potential to materially negate any losses that could be experienced through an equity market fall.

In fact, the numbers are quite compelling. If Japan’s Government Pension Investment Fund had moved to #GetOffZero and gain exposure to cryptocurrency through our Digital Asset Index Fund last year, they would have seen a 46% return on the investment year to date or 0.46% increase in overall portfolio performance. With these trends playing out over the next 2-3 years, my anticipation is that the Digital Asset Index Fund will continue to drastically outperform the S&P 500. (We were literally willing to bet on it).

Additionally, 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. We are at an important moment in time — the retirement funds of tens of millions of Americans are in significant danger and it is important that capital allocators understand the benefits that Bitcoin and crypto present.

These people have been promised there will be money waiting to support them in retirement as long as they work hard and do their jobs. The people have upheld their end of the bargain…it is important that the institutions now deliver on their promise.

Rather than running from innovative technology, the best investors in the world (Yale, Stanford, MIT, Notre Dame, UNC, etc) are embracing Bitcoin, cryptocurrencies, and blockchain technology. Hopefully the majority of investors follow suit before it is too late.


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