Canada’s $190bn Ontario Teachers’ Pension Plan says it is steering clear of the cryptocurrency sector after writing off a $95mn investment in FTX, the failed digital currency exchange.
OTPP was among a number of big-name money managers to back FTX, with investments in 2021 and early 2022. The move was widely seen as a sign that high-profile, blue-chip investors were giving their stamp of approval to the fast-growing but lightly regulated crypto sector.
But in November 2022 OTPP wrote off its entire stake, following FTX’s dramatic collapse. The exchange’s high-profile founder, Sam Bankman-Fried, is now facing fraud charges.
“We’re still working through what exactly happened there and you’re going to be careful”, OTPP chief executive Jo Taylor told the Financial Times.
“It’d be unwise for us to rush” into another crypto investment based in part on “feedback from our members”, he added.
While OTPP’s investment was relatively small at less than 0.05 per cent of its total assets, the fund has nevertheless like many other FTX backers come under scrutiny for investing in a company whose founder is accused of securities fraud and looting the platform for personal gain. Bankman-Fried has pleaded not guilty to the charges.
“We took our time and did a lot of due diligence on the business. It didn’t turn out the way we thought,” said Taylor, whose fund delivers pensions for around 330,000 teachers and school workers.
“We weren’t necessarily shown all the information we needed to know to make a balanced decision,” he added.
OTPP was not the only Canadian pension fund to be burnt by crypto failures. Caisse de dépôt et placement du Québec, the country’s second-largest pension fund manager, wrote off a $150mn investment in crypto lending platform Celsius, after its collapse last year.
CDPQ has also since said the Celsius investment marked the end of its foray into crypto.
“We’ve had some learnings from the investment,” added OTPP’s Taylor. “We’ve had feedback from our members. We regret any loss on their behalf.”
OTPP was one of only a few global pension plans to deliver positive returns in 2022, a year hit by an unusual slump in both listed stocks and bonds, despite its losses on FTX. The fund was buoyed by its private market positions, which make up just over half the portfolio.
The fund is now eyeing fresh opportunities in real estate, an asset class where it remains “cautious” as central banks around the world battle to get inflation under control with aggressive rate rises.
“The challenge at the moment, in many ways, is the debt markets are probably pretty much closed,” said Taylor. “For a lot of real estate valuations there’s not a lot of activity to set a mark for future transactions.”
The fund is also looking to build its exposure to private credit, where non-banks lend to private companies as flows of traditional capital dry up.
It plans to expand its investment in this area by CA$10bn over the next three years and is hiring to support this drive, with real estate an area of focus.
It believes market dislocation plays to the advantage of long term investors like pension funds, which are not as reliant on capital and debt markets for fundraising.
“The opportunities we have seen [for real estate] in Europe, and I’m talking UK, Germany, France, Spain and the Netherlands, have increased for long-term capital that isn’t reliant necessarily on some of the normal market dynamics,” said Nick Jansa, investment lead for Ontario Teachers’ in Europe, Middle East and Africa.
“Certainly there are opportunities appearing that haven’t been there for quite a while . . . everything from residential to logistics to life sciences.”