The UK pensions regulator has dampened hopes that British pension schemes may follow US counterparts into crypto investment, claiming that fund managers should not “speculate” with savers’ cash.
US pension schemes have been edging toward digital currencies in recent weeks with investment giant Fidelity unveiling plans for bitcoin allocation in 401ks this year, and a major Virginia fund announcing plans to fund two new crypto-focused hedge funds in the next month.
But the pensions regulator has today put the kibosh on suggestions the UK could soon follow suit, saying that pension funds investments need to be cautious in how they use savers’ cash.
“While pension schemes are permitted to invest in a wide range of instruments, they should always be appropriate to the long term nature of pension obligations,” a spokesperson for the Pensions Regulator told City A.M.
“We would not expect trustees to speculate with savers’ retirement savings.”
Financial experts at law firm Eversheds Sutherland said the comments from the regulator come as no surprise after an extended period of negative mood music and warnings from the UK’s top financial watchdogs toward cryptocurrencies.
“There is no realistic expectation that pension funds will be able to invest into unregulated crypto currencies and crypto assets any time soon, or indeed at all,” said Jonathan Master, a Partner in Eversheds Sutherland’s financial services team.
Pension funds’ investments are also restricted by a need to deliver predictable cash flow as well as liquidity in order to payout regularly to members of the scheme.
While crypto delivers on liquidity, global head of pensions at PwC Raj Mody said that pension funds’ penchant for predictability means investment in crypto was currently off the table.
“It is ultimately a speculative asset rather than one which provides a contractual income,” he told City A.M.
“There might be risks in a bond but you can get a handle on the risk, same with equity as a share of a company – you understand the risk return argument especially in a diverse portfolio. With crypto you are leaving the returns more purely to the whim of the market.”
Mody said that ultimately trustees are accountable and it was “difficult to see how a typical pension fund has the bandwidth or the need to go after crypto in a material way.”