In May 2024, AMP became the first Australian super fund to commit to cryptocurrency as an asset class, when it added Bitcoin futures into its dynamic asset allocation program.
Its investment was initially made public in a LinkedIn post some six months after it made the move, and it was more “one small step” than a “giant leap” – or, as Stuart Eliot, AMP head of portfolio management characterises it, AMP went from “zero to 0.1” – but it was still breaking new ground in an industry where few participants want to diverge even slightly from traditional asset classes.
“At the time of the SEC’s approval of Bitcoin ETFs, we’d been rebuilding our DAA program for about two years, and had been trading with it for about a year,” Eliot told the Investment Magazine Fiduciary Investors Symposium in the NSW Blue Mountains.
“It was derivatives-based, systematic and, importantly for the Bitcoin step, it included commodities and currencies. And it also helped that we had a few Bitcoiners in the team as well.”
AMP has an “objective” set of criteria that must be met before a new signal can be added to the overall DAA model. It has to have a sufficiently high Sharpe ratio on its own, a low correlation to other signals and be additive to the process as a whole. The SEC’s approval of Bitcoin ETFs gave it “institutional legitimacy”, as well as similar regulatory oversight and protections as any other asset class.
“At that point, we then looked at all of our pre-existing signals and which ones would make sense to apply to the Bitcoin process, and to see whether or not they actually worked,” Eliot said.
“And fortunately, three of them, you plug in the Bitcoin price and they worked well without any adjustment; a fourth signal, based on sentiment, which we used to trade VIX futures, we just had to tweak that a little bit for it to work.”
Eliot said that there were no insurmountable hurdles to bringing Bitcoin into the DAA program, and that satisfying APRA was a matter of demonstrating that risk controls were in place and that the trustee understood the asset class and was supportive of its inclusion.
“It was the same ‘why’ as for anything else in the portfolio,” he said.
“We have a DAA program that’s largely looking to add incremental return with not much risk. And this is something we could see that very clearly worked and which was additive to the process. So it’s beholden upon us to do that.
“When we came out of the closet in December, the phones were ringing hot in our call centre and there were a few people who were cranky, but predominantly the two questions were: which funds have Bitcoin in them and can I move my super there? And do you have a 100 per cent Bitcoin option? The answer to that one is no, or at least not yet, but that’s the Holy Grail I’m working towards.”
But a lack of Bitcoin in the benchmarks against which super fund performance is measured will likely continue to hold them back, even where they are satisfied that it is an investible asset class.
“We’re in this world where we have seen mass adoption, both at retail user and retail investor level,” said Richard Galvin, executive chairman and CIO at crypto fund manager DACM.
“There’s 660 million owners of crypto in the world, which is quite a staggering number. For a whole bunch of reasons it’s happened at the retail level way faster than it’s happened at the institutional level. And I think for any technology to be successful, you have to have that sort of first-user base, the sandbox user that will go through the friction to try something out.”
For example, the first access most people had to the internet was through slow and clunky dial-up connections, but they’d still go down to internet cafes to use it. Crypto has now gone through the phase where the layperson can understand it and it’s not a chore to use and access, Galvin said.
“That’s where we start to see acceleration, like we did with the internet. Users adapt way faster than corporations and institutions. As a media banker, one of the best examples I like to think of is that Fairfax built two massive printing presses in the late 1990s in Chullora and Tullamarine. Now, with hindsight, that looks completely insane. Even at the time it kind of looked insane. To not see that disruption coming is a trait you see time and time and time again.”
