An unnamed UK pension fund is allocating 3% of its total assets – which are valued at around £50m (€59.5m) – to bitcoin following the advice of Cartwright, a pension specialist for defined benefit and hybrid schemes.
The first of its kind in the UK, the allocation took place in October after a rigorous training and due diligence process, Cartwright stated, without disclosing the name of the pension fund.
Sam Roberts, director of investment consulting at Cartwright, told IPE that with the scheme’s investment time horizon set for 10 years, the 3% bitcoin allocation is appropriate.
Additionally, bitcoin’s “asymmetric return profile enables a small allocation to have a big positive financial impact, protected by the extensive risk management at both scheme and asset levels”, the firm added.
Roberts added: “Trustees are increasingly looking for innovative solutions to future-proof their schemes in the face of economic challenges. This bitcoin allocation is a strategic move that, not only offers diversification, but also taps into an asset class with a unique asymmetric risk-return profile.”
Noting that several other investment consulting firms in the UK are against or do not support advising clients on bitcoin investment, he said that Cartwright’s advice centred around constructing the best possible portfolio, adding that it cannot happen if not all asset classes are considered.
“Our approach ensures that schemes can benefit from the significant potential upside whilst limiting the potential downside. Integrating bitcoin into a pension scheme’s investment strategy is a bold step that reflects the forward-thinking nature of the trustees involved,” Roberts noted.
“This is the first UK pension fund to do it [allocate to bitcoin], but is not the first to do it globally,” he said, adding that investors need to understand bitcoin before investing, but the first mover advantage is greater when the supply is fixed.
Steve Robinson, Head of Investment Implementation at Cartwright, said: “The operational procedures around this bitcoin investment have been designed to maximise the security of the asset whilst allowing profits to be taken quickly as and when they arise. Our commitment to actively engage with emerging innovative technologies means we can ensure that trustees remain at the cutting edge of investment solutions.
“By combining a highly secure custodial solution with a mechanism to quickly trim profits as they arise, we’ve opened the door for risk-averse pension schemes and other institutional investors to benefit from bitcoin’s potential growth whilst managing volatility within a secure strategic framework.”
Robinson explained that the solution created also has a low minimum investment threshold “meaning that this option is available to pension schemes of all sizes, unlike many historic investment ideas when they first become available”.
Roberts said that there is a second larger UK pension fund Cartwright is working with for a bitcoin allocation, but it is far behind in terms of a strategic decision.
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