A $6.8 billion pension fund based in Virginia plans to start investing in crypto lending markets.
The Fairfax County Retirement Systems recently received approval from its board of trustees to begin investing in yield farming. The decision comes despite crypto lending being at the center of this year’s credit crisis in digital asset markets, which has landed retail investors with heavy losses and bankrupted several companies.
“Some of the yields that you’re able to achieve in a yield farming strategy are really attractive because some of the people have stepped back from that space,” said Katherine Molnar, chief investment officer of the Fairfax County Police Officers Retirement System. The Parataxis Capital’s digital yield fund and VanEck’s new finance income fund each received $35 million from the Fairfax system.
Incidentally, the Virginia-based pension fund had already been investing in crypto before deciding to delve further into yield farming. The Morgan Creek Blockchain Opportunities Fund received $10 million and $11 million in 2019 from the $5 billion Fairfax County Employee Retirement System and the $1.8 billion Fairfax County Police Officers Retirement System, respectively,
The initial investment came just one year after becoming aware of the technology. “We were at a conference and we heard an academic who teaches a course on the topic speak,” Molnar said. “We were really intrigued by the promise of the technology and its products.”
Following extensive due diligence, the pension managers placed the initial allocation primarily with companies that provide infrastructure for the crypto markets. The two pension funds then made a further seven digital allocations, among them private equity, hedge funds, and now yield-farming strategies.
“We started in venture capital and private equity,” said Andrew Spellar, investment chief for Fairfax County Employees. “But once we got more comfortable in the space, we started to think a bit broader about how we might be able to use strategies in digital assets in other parts of the portfolio.”
Their success so far, in spite of this year’s market turmoil, has enabled the confidence for this further venture. Although expected to take a hit of 50% on the year, the investment still remains up 350%. “We are still convicted in our original thesis,” said Molnar. “Things will bounce back and the stronger technologies will probably survive.”
Fidelity Investment made waves earlier this year when it announced that it would allow employers to offer Bitcoin to employees in their 401(k). Meanwhile, Grayscale CEO Michael Sonnenshein predicted that more pension fund companies would add crypto to clients’ portfolios.