AMP Super has become the first Australian super fund – and one of the earliest global pension investors – to allocate to cryptocurrency.
The fund gained exposure as a part of its dynamic asset allocation program and through an internal quant trading program of bitcoin futures in May, Investment Magazine understands. The model drives the buy and sell levels.
AMP Super still holds around $27 million in the digital assets, or 0.05 per cent of its total super assets under management. The fund’s chief investment officer Anna Shelley said it was a “small and risk-controlled position”.
“[The position] recognises the structural changes in the industry over the past year, including the launch of exchange traded funds by leading international investment managers,” Shelley said in a statement.
“While our super members have benefited from the exposure, we fully appreciate the risk and volatility characteristics of this emerging asset class and will continue to carefully manage our holding, which is a fractional component of a highly diversified asset mix.”
The public disclosure of the holding came as bitcoin cracked the US$100,000 ($156,000) mark for the first time, in early December. The original cryptocurrency has been on a run as US President-elect Donald Trump sends clear signals that he will be a proponent of the digital asset during his term. Last week, Trump nominated a reportedly pro-crypto businessman, Paul Atkins, as the next chair of the powerful US Securities and Exchange Commission.
Jumping on board
One senior asset consultant told Investment Magazine that the level of interest in cryptocurrency from funds is “very correlated” with recent strong performance.
“We do tend to get more queries after the price has gone up a lot,” the consultant said, speaking on condition of anonymity. “Bitcoin has gone up so much in the last month, there’s no doubt that we get more queries about ‘should we invest in bitcoin’ after the fact.”
One argument from bitcoin supporters suggests that the cryptocurrency is a store of value akin to gold, due to its limited supply. The final bitcoin is expected to be mined in 2140 and of the existing tokens, and a significant portion has been lost due to forgotten private keys.
But the asset consultant said this argument has yet to convince them, as gold has real uses such as in computer technology or jewellery, whereas the value of bitcoin is “based on people believing it’s worth more tomorrow than it is today”.
Even if any asset owners are considering investing in cryptocurrency, it is not likely to be a strategy driver. “It’s not even a sub-sector, it’s sub-sector of a sub-sector,” the consultant said.
“I think if people can get comfort around…how you work out whether it’s valuable, or if you get a change in usage – which might lead to an economic fundamental argument – because of a change in government regulation, particularly in countries like the USA, you might get more interest.
“People just tend to make the linear extrapolation of, ‘here’s where the price was, here’s where the price is’.
“Which, again, is just backward-looking.”
Legal and Prudential managing partner Jonathan Steffanoni said AMP’s move also raises a legal question.
“All trustees are prohibited from making speculative investments in state trustee acts,” he wrote on LinkedIn. “While many investments carry some speculative aspects, crypto assets have no economic fundamentals. They’re pure speculation.”
Most local asset owners are still watching from the sideline. Answering a question during its annual member meeting, AustralianSuper head of asset allocation Alistair Barker said the fund is not currently considering cryptocurrency.
What the fund is considering, however, is blockchain – the enabling technology for cryptocurrencies – and has made small investments in companies providing technology for things like registry businesses in the future.
“One thing we grapple with around cryptocurrency is how to value it as an investment,” he said.
“In particular, most assets are valued on the basis of what income they generate, and given those underlying investments don’t necessarily generate a great deal of income, it’s very difficult to form a view on value.”
But some spectating asset owners, while not actively invested in cryptocurrency, remained cautiously positive about digital assets. This includes REST’s recently departed chief investment officer Andrew Lill, who was one of the first asset owners to send a bullish message about cryptocurrency in 2021. He urged investors to keep an open mind.
