Speaking at Pensions & Investments' WorldPensionSummit conference, one asset owner said that he's embracing cryptocurrency as a portfolio diversifier.
During the second day of the conference on Thursday in The Hague, Netherlands, Sean Bill, chief investment officer of the Santa Clara Valley Transportation Authority, San Jose, Calif., said that the fund accessed its first cryptocurrency investments through a side pocket in a fund run by the investor's existing manager. Mr. Bill did not name the manager.
Speaking about a motivation for the move, Mr. Bill said the authority wanted a new investment with uncorrelated returns.
"We thought it was an interesting opportunity to put a non-correlated asset into a portfolio," Mr. Bill said about cryptocurrency, noting the challenges for investors to find uncorrelated assets.
"The way we framed it for our board was that it was potentially a diversifying asset that had a venture capital-type return profile that also had daily liquidity," he said, adding that what resonated with the board was that the asset class could be used similar to gold.
But Mr. Bill said that cryptocurrencies have more functionality than gold and can be transacted faster than gold at a very low cost.
Mr. Bill said that in the beginning the crypto investment was considered "controversial" and "raised some eyebrows" in the pension community.
The fund's exposure stands at 0.5%, lower than initially proposed to the board at between 1% and 3% allocation.
Delegates attending the session didn't share Mr. Bill's positive outlook on the asset class. In a poll conducted during the session, half of the voters said they wouldn't consider crypto investments, while 24% said they would. The rest of the voters didn't have a specific view.
Among them was Mr. Bill's fellow panelist, Kari Vatanen, CIO of Veritas Pension Insurance Co., Helsinki, who said he was neutral on crypto. Mr. Vatanen added that investors are yet to find a role for crypto in asset allocation.
While Veritas currently doesn't invest in cryptocurrencies, Mr. Vatanen said that cryptocurrencies can prove to have a negative carry over time and, like gold, could prove to be difficult to incorporate into portfolios.
There is no explicit carry based on growing demand and limited supply in the future, Mr. Vatanen said, noting it is hard to tell if cryptocurrencies can help to diversify investments or help with hedging against inflation or any other markets movements.