Virginia Pension Fund Invests in Crypto Lending in Aim to Boost Yields
A $6.8 billion Virginia pension fund is looking to boost returns by investing in crypto lending markets despite a crisis in the industry that has pushed several companies into bankruptcy and left retail investors with heavy losses.
Fairfax County Retirement Systems recently won approval from its board of directors to begin investing in “yield farming” in which investors lend their digital tokens to crypto projects in exchange for a fixed stream of payments.
“Some of the returns that you’re able to get in a yield farming strategy are really attractive because some people have pulled out of that space,” said Katherine Molnar, chief investment officer of the system. Fairfax County Police Officers’ Retirement. a meeting.
Crypto lending has been at the center of this year’s credit crunch in digital asset markets after the $40 billion collapse of stablecoin terra, which was a popular tool for yield farming, sent shock waves throughout the area.
Several major crypto lending firms, including Celsius Network and Voyager, as well as hedge fund Three Arrows Capital went bankrupt while dozens of retail traders who invested in risky yield strategies suffered heavy losses. Many yield farming projects offer returns well above those available in bond markets, but offer few of the investor protections found in traditional finance.
Molnar said that “for those who are still willing to provide liquidity, decent profit seekers, they are actually in a position to earn more attractive returns at this time.”
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The Fairfax System recently placed $35 million each with Parataxis Capital’s Digital Yield Fund and VanEck’s new Financial Income Fund, which aims to provide income to investors through short-term loan agreements with digital asset entities.
The Fairfax System’s investment in these crypto yield funds comes after its largest Canadian counterpart, Caisse de depot et placement du Quebec, was stung by Celsius’s decision to halt client withdrawals and stake demand. bankruptcy that followed. The CDPQ had invested in equity in the private group last year as part of a bet on the future of blockchain technology.
The $5 billion Fairfax County Employees Retirement System and the $1.8 billion Fairfax County Police Officers Retirement System had previously invested in crypto before making the decision to venture into yield farming. Pension funds first invested $10 million and $11 million, respectively, in the Morgan Creek Blockchain Opportunities Fund in 2019, a year after being alerted to the technology’s potential.
“We were at a conference and we overheard an academic who teaches a course on the subject,” Molnar said. “We were really intrigued by the promise of the technology and its products.”
The pension managers said they undertook extensive due diligence before making their first allocation, with the investment primarily in companies that provide the plumbing for the crypto market rather than tokens. The two pension funds then made seven more digital allocations, covering private equity, hedge funds and now yield strategies.
“We started out in venture capital and private equity,” said Andrew Spellar, chief investment officer for Fairfax County employees. “But once we got more comfortable in the space, we started to think a bit more broadly about how we could use strategies in digital assets from other parts of the portfolio.”
The systems said their initial investments in the digital asset sector are expected to be hit by around 50% by this year’s market turmoil, but that would still leave the investment up 350%.
“We are still doomed in our original thesis,” Molnar said. “Things will bounce back and the stronger technologies will likely survive.”
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