The Friday Takeaway: Focus on the right digital drama
The decision by an anonymous pension fund to allocate to the cryptocurrency bitcoin earlier this year has ruffled a few feathers since it was made public a month ago.
Commentators on social media and in the national press have criticised the move, claiming it is reckless or even gambling with pension savers’ money.
The latter claim falls down when you consider that the pension scheme in question is defined benefit, so the risk falls predominantly on the employer and not the members.
As to whether it is reckless, I am no expert in cryptocurrency and personally have not invested in bitcoin (and that’s unlikely to change anytime soon). However, the pension scheme trustees’ decision was very obviously not taken lightly. Consultants at Cartwright, the company that advised on the investment, have written at length about the bitcoin investment case – whether you agree with it or not is up to you, but it is certainly worth reading.
Good governance dictates that any new investment needs to be carefully considered, subjected to strong due diligence processes, and not executed until the investment decision makers are completely happy with the risks and opportunities involved.
It is completely new ground for a UK pension scheme to allocate to a digital investment in this way. I simply don’t accept that the people involved – whether trustees, consultants, lawyers, or others - would have done so without substantial research and consideration of all the possibilities. Fiduciary duty is a powerful concept, after all.
This week the price of one bitcoin surged past $100,000 – up from just over $69,000 when the pension scheme’s allocation was made public. This is a rise of almost 50%, which may mean the scheme very quickly becomes a seller, depending on its targets, risk budget, investment strategy and the wider portfolio.
If we want to get worried about something in the digital domain, it should be cybersecurity. I have heard several trustees in recent months voice some uncertainty and caution regarding the huge amount of data that is about to be released into the newly established pensions dashboard ecosystem. Surely that is where our attention needs to lie, rather than handwringing about one small pension scheme’s small investment in bitcoin.
Enjoy your weekend.
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