Pension funds around the world hunt for higher interest rates and they are increasingly dabbling in crypto, research shows.

Crypto announcements seem to spring up like mushrooms, almost to the extent that they obscure important developments.

An example. Recently, the Houston Firefighters' Relief and Retirement Fund announced that it had started investing in cryptocurrencies.

The apparent justification was that its managers could no longer ignore the new asset class. And the Australian Queensland Investment Corporation, the country's fifth largest, also seems to be interested.  

Fear of Missing Out

Indeed, the major Token and Coins seem to be going from record to another this year. Bitcoin has more than doubled since the start of the year and it is currently hovering near its all-time high of $67,000.

Smaller cryptocurrencies have seen gains in the hundreds of percent this year. All this strikes a very heavy dose of FOMO, or the fear of missing out, in the hearts of investors.

Endless Possibilities

Pension funds are apparently no longer holding back when it comes to participating in the capital increases of the major cryptos and crypto-related platforms. Canada's Caisse de dépôt et placement du Québec (CDPQ), renowned for being extremely conservative, recently made an investment in in Celsius Network (paywall) a crypto-currency platform.

What about Swiss pension funds? Little is happening without the tacit approval of regulators. The head of the relevant supervisory authority Roman Saidel told finews.com that the opportunity to invest in cryptocurrencies is clearly there but that they would be classed as «alternative investments». That means pension funds can allot a maximum of 15 percent of their assets to them. In other words, it means that crypto investments are not prohibited.

Bank Interest

Seidel also acknowledges there have been a few questions from banks related to crypto investments given their interest in pitching institutional clients new investment ideas.

Finma, when asked by finews.com, indicates that pension fund related questions should be sent to the relevant supervisory authorities. It says it has not received any questions from pension fund managers related to crypto, a media spokesperson continued. Much hinges on the quality of the assets and internal balance sheet policy requirements, the spokesperson said.

Theft and Volatility

But are capital investments in crypto even a good idea? Seidel warns about the current hype related to crypto, saying that total losses are clearly a possibility. Besides that, they can be stolen. High volatility is also an issue, particularly in relation to new cryptocurrency regulation - and the effect of such high fluctuations on investments shouldn't be taken lightly.

Pension fund regulators always have an eye on diversification. Investing in one cryptocurrency is difficult to see in that light. What is needed are more pooled investments. But, in the end, the boards of the pension funds have to decide for themselves what risk strategies are relevant for their needs, Saidel continues.

Not Written in Stone

What is also interesting is that the 15 percent limit is not written in stone. The limit can be dropped if a pension fund can justify it, like with very young groups of insured members.

But the thinking has to change. When looking at the composition of pension funds assets as a whole, it is striking that «alternative assets», including private equity and hedge funds, only comprise 7.6 percent of the total of pension fund assets invested. Pension fund managers could invest up to 15 percent of their assets but the are not taking advantage of that opportunity now.

The expected return in such asset classes in relation to the risks is likely not attractive enough, Saidel believes.