WisCOINsin!
There are now two US state pension funds investing in Bitcoin, which is a pretty big deal as I explained in an earlier column!
Another remarkable news item caught my attention during my holiday: the state pension fund of Michigan invested USD 6.6 million in Bitcoin. That's big and reminds me of a recent Dutch column I wrote about the first American state pension fund to do this—the State of Wisconsin Investment Board. Given the immense relevance of this development, here is that column in English.
Hello Wisconsin!
The State of Wisconsin Investment Board (SWIB), the entity managing the Wisconsin Retirement System, has added Bitcoin to its investment portfolio. It is now the sixth-largest investor in the iShares Bitcoin Trust, the largest spot Bitcoin ETF with over USD 20 billion in assets. Additionally, SWIB ranks 11th in the Grayscale Bitcoin Trust (GBTC).
You might think this is a 'dodgy' small pension fund with a questionable reputation, right? On the contrary. It is the tenth largest (some sources say the ninth largest) pension fund in the United States, with total assets under management exceeding USD 130 billion. It serves nearly 700,000 participants, including teachers, civil servants, and healthcare providers. Not to mention, the pension fund boasts a coverage ratio of over 100%, a rarity in the United States. SWIB has been executing investment policies since 1951 and is known for being reliable, solid, yet innovative. These people are no amateurs.
Status Quo
Why is this important enough to write a column about? In my previous life as a Robeco investor, I frequently dealt with pension funds. As I have often said, I am not always a big fan of them. It's a close-knit world that sustains itself and is certainly not known for its progressiveness. Almost all decision-making is bureaucratic and sluggish, and adding a new asset class can literally take years, during which a fortune is spent on expensive consultants to cover their asses. Pension fund boards often fear reputational risk, leading to a prolonged status quo. Not exactly a climate in which you would easily invest in Bitcoin.
SWIB is breaking that status quo much sooner than I expected. My baseline scenario was that asset managers and investment funds like mine, active in the alternative investment space (though I also invest in 'traditional' quality stocks), would make the move first. Traditional asset managers, often still characterized by the outdated 60-40 (60% stocks, 40% bonds) approach, would follow later, with sovereign wealth funds and pension funds being the last in line.
Herd Behavior
Another important point is that pension funds and many other traditional investors are characterized by a high degree of herd behavior. This is primarily because it's a bit of a copycat world in which participants do not want to deviate too far from each other. In Germany, for example, the fund landscape is largely determined by a handful of 'consultant lists' everyone closely monitors. There, gold, unlike in most other countries, has penetrated the strategic mix of multi-asset funds. In some countries, pension funds are even required to follow each other. When it is often decided from above to include an investment category, all (state) pension funds must follow.
In my Dutch column, I concluded with the following:
‘I won't claim at this stage that more American pension funds will quickly follow Wisconsin, but it seems evident that the taboo on investing in Bitcoin is rapidly diminishing.’
Once again, that was too cautious of me. In addition, if investors and boards also start to connect the dots regarding bonds (abundant, low returns, more risk, and less diversification), the hunt for truly scarce assets can quickly escalate. So keep an eye on the headlines, and don't be the last to get on board.
Go WisCOINsin!