When Ruffer invested around $600m into bitcoin at the end of 2020, pension funds took notice and began calling their investment consultants.
The UK asset manager’s bet on the fledgling asset class coincided with a sharp rise in bitcoin’s price, fuelled in part by a growing number of retail investors piling in during Covid lockdowns.
By the time Ruffer sold its position five months later, bitcoin’s price had more than doubled and it had netted a $1.1bn profit.
Three years on and the sector has suffered the so-called crypto winter as well as seen the high-profile collapse of crypto exchange FTX in November 2022. This year, US regulators including the Securities and Exchange Commission have taken two other large exchanges to court — Coinbase and Binance.
Perhaps unsurprisingly, pension funds have now gone cold on the idea of allocating money to crypto.
“There has been a radio silence. We have stopped getting the calls,” said Matthew Scott, a senior strategic investment research specialist at investment consultancy Mercer.
“There was a flurry of activity in 2021 and I was being rolled out for client meetings. They were very interested. Almost all the meetings were about people wanting to know about crypto.”
“I haven’t heard of any pension schemes interested in bitcoin,” said John Ralfe, an independent consultant and pensions expert. “I can’t believe that people are queueing round the block.”
Despite UK pension funds’ waning interest in cryptocurrencies, some surveys continue to point to increased institutional appetite.
London-based hedge fund Nickel Digital Asset Management published research in July showing 87% of institutional investors and wealth managers believe investment in crypto will be attractive in the year ahead; 92% believe it will become attractive over the next five years.
But investment consultants say their institutional clients — mainly traditional pension funds worth tens of billions of pounds — show no sign of making a play for bitcoin or other cryptocurrencies.
“I’m not aware of any UK pension fund clients directly investing in crypto or even asking about it,” said Alasdair MacDonald, chief investment officer for WTW’s UK investment advisory business.
However, MacDonald said he wouldn’t rule out pension funds having “some immaterial indirect exposure to crypto” via investment in hedge funds or venture capital investments in crypto businesses.
Mercer’s Scott said pension funds had grown sceptical over crypto and some of its use cases.
“Look at ChatGPT: when it came out, shortly afterwards it was on everyone’s computers. Thirteen years in, we are still not clear what the use case is for crypto, other than it being a casino,” said Scott.
They are also taking their ESG responsibilities seriously, so bitcoin’s poor green credentials are a turn-off.
According to Bitcoin Energy Consumption Index, the cryptocurrency is responsible for the production of more than 62 million tonnes of carbon dioxide annually. That gives it a carbon footprint comparable to that of Belarus.
“The sheer quantity of energy that is used to maintain bitcoin is a huge problem for a lot of institutions,” said Scott.
“You have an asset that is incredibly carbon intensive, practically unregulated and there’s a huge amount of fraud — it is not screaming institutions.”
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