FTX Collapse Adds to 2022 Woes for Pension Funds, Investment Firms

Following the bankruptcy of cryptocurrency exchange FTX, a growing number of pension funds and investment firms are revealing that they were directly or indirectly exposed to Sam Bankman-Fried’s crypto empire, resulting in hefty losses for investors in the United States and Canada.

This comes as many of these pension funds and Wall Street firms have been decimated by the stock market meltdown in 2022 exacerbated by the Federal Reserve’s rate-tightening campaign.

The Missouri State Employees’ Retirement System (MOSERS) revealed in its latest updated portfolio estimates that it possessed a minuscule exposure to FTX. Because the pension fund invested in the BlackRock PE Co-Investment 2021 Fund, it had approximately $1.2 million exposed to the bankrupt exchange.

According to MOSERS, this accounted for 0.01 percent of its total $8.2 billion portfolio.

The $75 billion Alaska Permanent Fund (AFP) parked its sovereign wealth funds in Sequoia Capital’s Global Growth Fund III, which had invested a small portion of the capital into FTX. The fund transferred $4 million to the group’s $15 billion private-equity program, which had then tapped into the investment fund.

The $73 billion Pennsylvania Public School Employees’ Retirement System had approximately $5 million in indirect exposure to FTX. This is in addition to the roughly $30 million in indirect exposure to crypto-related tech firms.

The Ontario Teachers’ Pension Plan (OTPP) confirmed it invested $75 million in FTX in October 2021 and an additional $20 million in January 2022. The investments were completed through its Teachers’ Venture Growth (TVG) to gain some exposure to digital assets and the financial technology sector. It represented 0.05 percent of the pension’s total net assets.

The Ontario Teachers’ Pension Plan Board office is shown in Toronto, Canada, on Sept. 28, 2021. (The Canadian Press/Cole Burston)

One of Canada’s largest public pension funds plans to write down its $95 million investment FTX by year-end.

“The financial loss from this investment will have limited impact on the plan, given its size relative to our total net assets and our strong financial position. However, we are disappointed with the outcome of this investment, take all losses seriously and will use this experience to further strengthen our approach,” the OTPP said in a statement.

This comes months after the Caisse de depot et placement du Quebec announced it would be writing off its $150 million investment in the Celsius Network.

Since 2012, more Canadian pension funds have been delving into cryptocurrency, including the Ontario Municipal Employees Retirement System, which invested in crypto-related assets.

Private investment firms have also seen their capital in FTX evaporated this month.

Sequoia Capital and SoftBank, for example, wrote down all of the $214 million and $100 million, respectively, on their FTX investments.

“We are in the business of taking risk,” Sequoia wrote in a message to investors. “Some investments will surprise to the upside, and some will surprise to the downside. We do not take this responsibility lightly and do extensive research and thorough diligence on every investment we make.”

BlackRock, Tiger Global Management, Grayscale, and Multicoin Capital have been some of the other prominent investors that have lost considerable sums. Last year, BlackRock, Lightspeed Venture Partners, and Tiger Global led the Series B-1 funding round that helped FTX raise about $420 million. It is unclear how much the world’s largest asset manager tossed into the funding round.

Will Funds Ditch Cryptocurrency?

Because some market experts have warned that this could spell the demise of the crypto sector, there has been an expectation that this will force public pensions to become more hesitant about investing in funds that have transferred money to anything related to crypto.

But not everyone agrees, explaining that this debacle will prompt the government to impose more regulations on the industry, attracting more retail and institutional investors in the future. At the same time, it is crucial to avoid “knee-jerk reactions,” says Nick Dazé, the CEO of web3 SaaS.

“Regulators will use this as the starting gun to accelerate regulatory positioning and roll out. We need to be really careful here because while it may be true regulation is necessary on some level, we do not want to see knee-jerk reactions produce untenable legislation,” he told The Epoch Times.

John Lo, a managing partner of Digital Assets and the head of Omakase Strategy at Recharge Capital, agrees, purporting that the cryptocurrency landscape will be quite different in the coming months. According to Lo, there will likely be proposals to “curb stomp decentralization.”

“Make no mistake, centralized actors will continue to curb stomp decentralization when presented the opportunity regardless who the main character is at the moment. However, the ascent of decentralized and autonomous solutions are inevitable,” Lo told The Epoch Times. “We’re about to witness a David and Goliath moment that will set the stage for how finance, commerce, and culture will look like in the years to come. The jar has been shaken, but this time it’s for all the marbles.”

Still, investors should be paying attention to any investment firm that has avoided sharp losses in 2022, Dazé added.

“For investors and investment firms with a focus on crypto, anyone that has avoided the pitfalls of 2022 is a group to watch,” Dazé stated. “Oftentimes, investing successfully is more about not losing and hitting singles than it is about grand slams. Companies that avoided these moments have a better handle on the fundamentals and inner workings of the industry than most.”

Since the industry’s market capitalization peaked above $2.5 trillion in November last year, the total cryptocurrency market cap has lost roughly $1.7 trillion, according to Coin Market Cap.