October 2024 could well go down as a groundbreaking moment in the UK’s long history of institutional investment. It was then that a pension fund took the giant leap into crypto. According to Cartwright, a pensions consultancy and an adviser to the as yet unnamed scheme, the trustees went with a 3% allocation to Bitcoin.
This is the first known example of a UK pension fund investing in a digital currency.
The corporate defined benefit pension scheme’s exposure equates to around £1.5m of the more than £50m of assets it has under management. Interestingly, it has a 10-year timescale, something that will raise eyebrows among other institutional investors.
What it lacks in allocation punch it makes up for on a reasonably long-term timescale. In so doing, it dispels the myth that crypto – or more specifically Bitcoin – is all about trading.
Explaining the decision, Sam Roberts, head of investment advisory at Cartwright, said: “This Bitcoin allocation is a strategic move that not only provides diversification but also taps into an asset class with a unique asymmetric risk-return profile.”
Is this the start of a new trend in crypto investment within the pensions, and indeed wider institutional investment, world? The jury, it seems, is most certainly out on that.
One pension pool I spoke to said they are looking at crypto and what it can offer the portfolio, but this is still very much in the assessment phase.
Roberts is convinced that this should be part of a wider tend among pension funds, as Bitcoin, he believes, offers retirement schemes an attractive investment option. “Trustees are increasingly looking for innovative solutions to future-proof their systems in the face of economic challenges,” he says.
Therefore, he argues, a Bitcoin allocation “is a strategic move that not only provides diversification but also taps into an asset class with a unique asymmetric risk-return profile”.
A new trend?
Simply put, embracing Bitcoin can work as a hedge against monetary debasement and counterparty risk. It offers diversification alongside other growth assets, such as equities, and is a way to access a rare long-term asymmetric growth opportunity as Bitcoin becomes more widely adopted across the world as a valid form of payment.
Cartwright has undertaken a study on this and expects an institutional adoption curve similar to when pension schemes started investing in equities in the 1970s, high-yield bonds in the 1980s and liability-driven investment in the 2010s. It can take some time for institutional investors to get comfortable with a new asset, but then it becomes reputationally risky to not have considered that asset as a natural part of optimal portfolio construction.
More specifically, Roberts says schemes can benefit from the potential upside whilst limiting any downside. “Inte- grating Bitcoin into a pension scheme’s investment strategy is a bold step that reflects the forward-thinking nature of the trustees involved.
“We hope this will be the start of a trend for institutional investors in the UK to catch up with their increasing number of peers and competitors around the world who are already taking advantage of Bitcoin’s unique attributes,” he adds.
Cartwright’s UK pension offering was also created with a low minimum investment threshold in mind, meaning this is open to pension schemes of all sizes, unlike many other investment ideas when they first become available.
A global market
Pension funds in other parts of the world have already taken the crypto leap. The Wisconsin Retirement Board has invested more than $162m (£132m) in Bitcoin spot exchange traded funds (ETFs) – with spot ETFs only being approved in January 2024.
This is a trend worth highlighting, says David Duong, head of research at Coinbase, a crypto exchange platform. “The approvals of spot Bitcoin and ether exchange-traded products and funds [ETPs and ETFs] in the US were watershed moments for the crypto-economy, punctuated by a net inflow of $30.7bn (£25.1bn) since inception [around 11 months ago],” he says. “That far exceeds the inflation-adjusted $4.8bn (£3.9bn) that the SPDR Gold Shares ETF attracted in its first year after launching in October 2004.”
Furthermore, options represent a further maturation of the Bitcoin ETF market that could facilitate new investment strategies, Duong said.
The State of Michigan Retirement System also has exposure to the asset class. It invested $6.6m (£5.4m) in a Bitcoin ETF in July as part of a broader strategy to diversify the fund’s assets, while Jersey City Mayor Steven Fulop has revealed plans for the city’s pension fund to invest in Bitcoin ETFs.
In Asia, Japan’s Government Pension Investment Fund signalled that it is considering investing in Bitcoin and is exploring the impact of the currency’s integration into pension portfolios. This comes as Japan explores deeper legislation to embrace digital assets. This move clearly highlights a growing recognition of the potential bene ts they could bring to institutional portfolios.
In Europe, some insurance companies have already leapt into investing in crypto. In October, the European Insurance Occupational Pension Authority put the total at €655m (£551m), although this is a mere smidgen of the €8.57trn (£7.2trn) of total assets under management.
No passing fad
Therefore, the move by a UK pension fund into this market is clearly part of institutional investors plugging into the rise and rise of a new world of investment. As the asset is seriously on the rise, the crypto craze can no longer be considered a short-term fad.
In fact, it is safe to say crypto went completely crazy last year, with the crypto market increasing by a mammoth $1.7trn (£1.4bn) in 2024, boosted by Donald Trump’s victory in the US presidential election.
According to data from Coinglass, the combined value of all digital currencies reached $3.29trn (£2.7trn) by the end of the year, up from $1.6trn (£1.3trn) 12 months earlier.
Although it is such rapid jumps that puts off some serious institutional investors from investing in crypto. These numbers resemble more of a wild trade than a long-term investment.
That said, the Donald Trump political impetus behind the rise of crypto should not be ignored. An important move Trump has made is the selection of Paul Atkins, a crypto lobbyist, as his nominee to chair the US Security and Exchange Commission, replacing long-time crypto critic Gary Gensler. This means the regulator could look more favourably on all things crypto.
“After struggling with political ambiguity for many years, the next legislative session could be the United States’ chance to finally establish some regulatory clarity for the crypto industry,” Duong says.
“This [recent presidential] election sent a strong message to Washington DC that the public is disaffected by the current financial system and wants change,” Duong says. “From a markets perspective, a bipartisan pro-crypto majority in the House and the Senate means that US regulation will likely ip from a headwind to a tailwind for crypto performance in 2025.”
Market momentum is also rising in the UK.
The Financial Conduct Authority has indicated plans to fully regulate crypto currencies by 2026, bringing it within the investment mainstream. And the Markets in Crypto-Assets regulation in the European Union, or MiCA, is being implemented in phases, providing a clear framework for the industry in a European context.
Many other G20 countries and major financial hubs – such as the United Arab Emirates, Hong Kong and Singapore – are also writing rules to accommodate digital assets, creating more conducive environments for innovation, growth and, of course, investments.
A changing market
Looking at the boost in crypto in more detail, there is now more than $109bn (£89bn) invested in Bitcoin ETFs, which are investment funds linked to the price of the currency and provide possibly a more measured way for institutional investors to gain access to crypto. So the institutional investment interest is clearly there.
Asset managers, like Blackrock among others, are also crucially facilitating the drive into crypto. The approval of Bitcoin and Ethereum ETFs by Blackrock and Fidelity Investments in 2024 signals rising institutional interest in regulated crypto, o ering diversi cation for risk-averse investors like pension funds.
This is already playing out. According to consultancy Macroscope, the Wisconsin Retirement Board’s investment fund is now the second largest reported holder of Blackrock’s IBIT (Bitcoin ETF) with around $100m (£82m) allocated.
Furthermore, tokenised assets, including Franklin Templeton’s government bonds and Blackrock’s corporate bonds, highlight blockchain’s role in potentially enabling instant settlements and reducing counterparty risks. Custodians like State Street and BNY Mellon now provide access to crypto assets, ensuring the investment process is now more fluid and efficient.
“Whether we are talking about pensions, endowments, sovereign wealth funds, insurers, other asset managers or family offices – they are having ongoing diligence and research conversations, and we’re playing a role from an education perspective,” says Robert Mitchnick, Blackrock’s head of digital assets about the institutional investor crypto conversations he is having.
Furthermore, tokenisation of real-world assets – the process of creating a digital representation of a solid object – grew to $13.5bn (£11bn) in 2024, with projections of $2trn (£1.6trn) to $30trn (£25trn) within ve years.
This trend is expanding into private credit, commodities, real estate and insurance, giving a strong indication to blockchain’s potential in possibly transforming traditional nance. Yet liquidity compliance challenges exist, which may well require regulatory progress.
And according to Duong, some investors are experimenting with using such tokenised assets as collateral for other financial transactions like those involving derivatives, which could streamline operations, with margin calls, for example, and mitigate risk.
Remaining cautious
Although, it is true to say that many institutional investors are naturally cautious when it comes to crypto, and for good reason, as everything crypto doesn’t always turn to gold.
A couple of pension funds being burnt by crypto proves the point.
For example, in 2023 Canada’s $190bn (£156bn) Ontario Teachers’ Pension Plan (OTPP) said it was steering away from crypto after writing o a $95m (£78m) investment in FTX, the doomed digital currency exchange.
“It would be unwise for us to rush into another crypto investment based in part on feedback from our members,” Jo Taylor, OTPP’s chief executive, said at the time.
In addition, Caisse de dépôt et placement du Québec, Canada’s second-largest pension fund manager, wrote o a $150m (£123m) investment in crypto lending platform Celsius, after its collapse in February last year. The rm has since ended its venture into crypto.
Nevertheless Steve Robinson, head of investment implementation at Cartwright, says there are safeguarding approaches for pension funds by combining a secure custodial solution with a mechanism to quickly trim profits as they arise. This, he says, opens “the door for risk-averse pension schemes and other institutional investors to bene t from Bitcoin’s potential growth whilst managing volatility within a secure strategic framework”.
It is worth noting that historically, the primary use case for Bitcoin has been as a store-of-value, due to its unique role in the crypto asset class. But developments within crypto and Bitcoin can mean its universe often looks like something of a maze.
Yet when it comes to Bitcoin in particular, Cartwright’s Roberts has some clear advice for institutional investors. “Take time to look and consider it as part of your portfolio. It is not for everyone. But investors may be surprised what it can offer.”
It is likely that more UK pension funds will take the crypto leap. Crypto as an investment, it seems, is here to stay.
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