Among those impacted by the U.S. bankruptcy filing of leading global cryptocurrency exchange FTX on November 11, 2022 is the Ontario Teachers' Pension Plan. Last October, the Ontario Teachers' Pension Plan Board, via its Teachers' Innovation Platform, invested $75 million in FTX Trading Ltd.'s (the owner and operator of FTX.com) Series B-1 fundraise. Early this year, the pension plan invested another $20 million in FTX. FTX was an attractive investment because the focus of the Teachers' Innovation Platform is growth equity and venture capital investments in companies, such as FTX, that are using technology to shape future markets. Hopefully the pension's financial losses in this investment will have limited impact since the pension's board has reported that the fund's FTX exposure is limited to 0.05% of its total assets as it manages more than $182 billion in net assets for Ontario school teachers. But, news of FTX's bankruptcy filing has negatively impacted cryptocurrencies, crypto related stocks and blockchain-related firms across the board, and will continue to have a ripple effect.
For U.S. retirement plans, this year has seen much debate regarding the Department of Labor's Compliance Assistance Release No. 2022-01 on 401(k) Plan Investments in "Cryptocurrencies" issued on March 10, 2022. The DOL has more recently explained that the Release does not make new law, but rather it was issued as an interpretive rule on the duty of prudence with respect to cryptocurrency investment options and reminds fiduciaries of their duties as expressed under ERISA and the Supreme Court's decision in Hughes v. Northwestern University, which found that fiduciaries must ensure that each plan investment option offered is prudent.
Yet, investments in cryptocurrency are not limited to 401k plans. In fact, in the 2022 CFA Institute Investor Trust Study found that 94% of state/government pension plan sponsors and 62% of corporate defined benefit plan sponsors invest in crypto assets, as institutional investors find that a small allocation to digital assets can be beneficial to a diversified portfolio. And for fiduciaries of retirement plans governed by ERISA, if the Retirement Savings Modernization Act introduced by Senator Pat Toomey, Senator Tim Scott and U.S. Representative Peter Meijer on September 29, 2022 is passed, ERISA would be amended to clarify that ERISA plan fiduciaries do not breach their fiduciary duties solely by selecting or monitoring investment options that include a range of asset classes, including digital assets and infrastructures. Prudent decision-making, therefore remains key.
While the latest fallout from the FTX bankruptcy will surely provide more reasons to scrutinize plan participant access to cryptocurrency and related investments, the story of the future of retirement plan investing is still being written. As the old adage goes, nothing ventured, nothing gained.
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