February 21, 2024

A $6.8 billion pension fund based in Virginia plans to start investing in cryptocurrency lending markets.

Fairfax County Retirement Systems recently received approval from its board of directors to begin investing in yield cultivation. The decision comes despite crypto lending being at the center of this year’s credit crunch in digital asset markets, which has left private investors with heavy losses and bankrupted several companies.

“Some of the returns you can get in a yield farming strategy are really attractive because some of the people have moved away from that space.” he said Katherine Molnar, chief investment officer of the Fairfax County Police Officers Retirement System; Parataxis Capital’s digital performance fund and VanEck’s new financial income fund each received $35 million from the Fairfax system.

Crypto investments

Incidentally, the Virginia-based pension fund had already invested 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 Employees’ Retirement System and the $1.8 billion Fairfax County Police Officers’ Retirement System, respectively.

The initial investment came just a year after becoming aware of the technology. “We were at a conference and heard an academic who teaches a course on the subject speak,” Molnar said. “We were really intrigued by the promise of its technology and products.”

After extensive due diligence, the pension managers filed the initial allocation primarily to companies that provide infrastructure for the crypto markets. The two pension funds have since made seven more digital allocations, including private equity, hedge funds and now yield cultivation strategies.

“We started with venture capital and private equity,” said Andrew Spellar, chief investment officer of Fairfax County Employees. “But once we were more comfortable in the space, we started to think a little bit more broadly about how we could use digital strategies in other parts of the portfolio.”

Their success so far, despite this year’s market turmoil, has given them confidence for this further venture. Although it is expected to take a 50% hit on the year, the investment is still up 350%. “We’re still doomed to our original thesis,” Molnar said. “Things will recover and the strongest technologies will probably survive.”

Fidelity Investment made waves earlier this year when it announced it would allow employers to offer Bitcoin to employees in their 401(k). Meanwhile, Grayscale CEO Michael Sonnenshein predicted more pension fund firms would add crypto to clients’ portfolios.

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