Virginia pension funds invest in crypto yield farming despite recent turmoil

Virginia’s Fairfax County Retirement Systems to Invest $6.8 Billion Pension Fund in Crypto Yield Farming to Boost Earnings, Financial Times report August 4th.

The retirement plan fund recently received approval from its board of trustees for the move, according to news outlets.

Katherine Molnar, Chief Investment Officer for Fairfax County Police Officers Retirement System, said in an interview with the FT.

“Some of the yields that can be achieved with yield farming strategies are really attractive because some people stay out of that space.”

Crypto yield farming refers to lending out digital assets for a series of payments. However, Virginia County’s decision comes at a time when the cryptocurrency lending market is marred by turmoil and the bankruptcies of many companies.

Molnar reportedly said:

“For those still willing to provide liquidity, those looking for a decent return, it actually offers more attractive yields at the moment.”

The Fairfax system recently invested $35 million each in Parataxis Capital’s Digital Yield Fund and VanEck’s new Financial Income Fund, according to a report by the FT. VanEck’s Financial Income Fund aims to provide income to investors through short-term loan agreements with digital asset companies.

However, this is not the first time Fairfax’s national retirement plan has invested in the cryptocurrency market. The $5 billion Fairfax County Employee Retirement Plan and the $1.8 billion Fairfax County Police Officer Retirement Plan will give $10 million and $11 million, respectively, to the Morgan Creek Blockchain Opportunities Fund in 2019, according to the FT report. million dollars invested.

The pension manager claimed to have conducted extensive due diligence before making its first investment in the crypto space, which according to the FT was primarily aimed at companies rather than tokens.

The two pension funds then proceeded to invest in private equity, hedge funds, and finally yield enhancement projects. Fairfax County Employees Investment Officer Andrew Speller said:

“We started with venture capital and private equity.

But as I got more familiar with the area, I started thinking a little more broadly about how I could use digital asset strategies in other parts of my portfolio. ”

Two pension funds expect initial investment in the crypto space to drop by 50% due to market turmoil, but the funds will still see a 350% increase, the FT reports.

Molnar said he remains confident that investing in cryptocurrencies was a good bet and hopes things will pick up as more powerful technology spreads.

Turmoil in the cryptocurrency lending industry

After TerraUSD (USTC) collapsed in May, the cryptocurrency lending market began to face significant pressure. Falling cryptocurrency prices, inter-company lending, and lack of proper risk hedging instruments have led to the bankruptcies of many, including Celsius Network, Voyager Digital, and hedge fund Three Arrows Capital. The rapid and sudden decline of these lenders has left thousands of retailers on the hook.

Additionally, even lenders that have not declared bankruptcy are battling liquidity issues, such as Babel Finance and Zipmex. Singapore-based Vault recently secured his three-month moratorium, which provides protection from creditors to settle the situation. Several others are also suspending withdrawals while retail customers bear the brunt of the losses.

Fairfax County’s investment in the cryptocurrency lending market was led by Canada-based Quebec Depository Corporation (CDPQ), an institutional investor that manages several public pension funds, after Celsius stopped withdrawals and subsequently went bankrupt. I got hit when I declared CDPQ is $150 million equity investment Celsius in October 2021.

In April 2022, Fidelity, one of the largest providers of 401(k) retirement plans in the United States, announced that it would allow participants to allocate a portion of their retirement portfolios to Bitcoin.

But in March, the U.S. Department of Labor warned Employers and supervisors must “exercise extreme caution” while adding cryptocurrency to 401(k) retirement plans.