Defense contractor Lockheed Martin’s pension fund has invested in Hidden Road, a prime brokerage that gives institutions access to crypto. The company absorbs downside risk for hedge funds if leverage bets turn sour.
Prime brokers lend big companies funds to make leveraged bets in mature markets. Leverage investors usually involve companies like hedge funds borrowing securities against collateral.
Experts Argue Prime Brokerage is Too Risky for Pension Funds
If the hedge fund loses money, investors like Lockheed are often left holding the bag. Credit Suisse’s demise was partly caused by the collapse of family office Archegos, which cost its brokerage arm $5 billion.
Companies like Lockheed likely want to improve returns for pension fund clients. But, the relative immaturity of prime brokers in crypto markets and the risks of leveraged trades have concerned industry experts.
“It’s a very risky investment to make,” said Andrew Urquhart of the Henley Business School. If my pension fund said we’re going to get into crypto, I’d be very worried about that.”
Industry participants also worry the company may be unable to survive large market events with its “thin” balance sheet. Last year, the Ontario Teachers’ Pension Plan and another Canadian fund lost almost half a trillion dollars after the collapse of FTX and Celsius.
Hidden Road offers prime brokerage services to UK, Netherlands, and Singapore clients. It does not service US investors. BeInCrypto has contacted Hidden Road for comment but has yet to hear back.
Singapore Burnishes Web3 Credentials With New Fund
In June, stablecoin issuer Circle was granted a payment license by the Monetary Authority of Singapore. The central bank has also issued draft rules for privately issued Singapore-dollar-backed stablecoins.
Earlier this month, MAS boosted Singapore’s crypto presence with a new investment fund targeted at Web3 and fintech. The $112 million Financial Sector and Technological Innovation Scheme has opened calls for projects.
The central bank has also tabled regulations forcing crypto exchanges to keep customer assets in a separate trust. A recent theft by a Bybit contractor saw a judge classify crypto as property.
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