Morgan Creek Digital now absorbs about 1% of the assets of two Fairfax Retirement System pension funds – an investment that has more than doubled since taking their first position in the fund that closed in February.
Two of the three pension funds under the Fairfax County system in Virginia, the Police Officer Retirement System and the Employee Retirement System, invested $ 55 million in the second Morgan Creek fund in October.
The new allocation came after preliminary good results from the first fund, thanks in part to the performance of cryptography, which accounts for 15% of Morgan Creek's investments; the majority of the fund's positions are in blockchain-related infrastructure companies.
"The final closing for fund 1 took place in February of this year, and it's a short deadline," said Katherine Molnar, chief investment officer of the police fund at CoinDesk.
"That's good, and that's partly because of Morgan Creek's decision on when to buy bitcoin. The liquid portion of the fund worked very well, given its ramp-up schedule in the portfolio. "
The police pension fund contributed $ 22 million to this investment, while the county employee fund provided $ 33 million. Molnar said $ 50 million of the investment went into the second round of fundraising, while $ 5 million was a separate co-investment in a specific undisclosed project under Morgan Creek.
These figures represent approximately 1.5% of the total assets of the police fund in 2018 and approximately 0.8% of the total assets of the county employee fund for the same year. As a reminder, both pensions normally spend about 2% of their assets on a new investment.
This time, it was easier to convince the board of directors to revive the investment than to take the initial bet.
"We did not need a lot of extra explanation or discussion, and people are generally satisfied with the good start of the performance. The legal process was much simpler because the lawyers did a good job in the first contract. "
The Morgan Creek Fund was named a private equity venture capital fund and was replacing a US small-cap equity fund in its portfolio – one of the most profitable and risky components of pension funds.
While the crypto portion of the Morgan Creek Digital Fund is working well, the pension fund's CIOs have shown the most interest in the Morgan Creek blockchain, which accounts for 85% of the fund.
Andy Spellar, Investment Manager of the Police Fund, told CoinDesk:
"Think about every time you buy a property and you refinance – you need to buy title insurance so that you can determine if there is a lien on your property. If the ownership of your property is scanned and transferred instantly, in the same way as it is done in a day, the property insurance is waived. "
As pension funds suffer from low interest rates, technology venture capital funds become more attractive to funds that are trying to achieve their performance goals, Spellar added.
"It's a general problem for everyone," said Spellar. "The level of interest rates is a major component of your total return over time."
As all assets are calculated non-cash, the low money rate affects the price of all other asset classes, added Molnar. This has not yet convinced both funds to invest in purely encrypted funds.
"We do not do it for crypto-exposure, but we get some of it, and up to now, it exhibits uncorrelated behavior compared to other asset classes," he said. Spellar said. "To be honest, it's so early in its life cycle that I do not know if it will hold or not."
Spellar, in general, sees any disruptive technology as a protection against traditional investments.
"We are looking for disruptive innovations – anything that can be negatively correlated to other assets we own," said Spellar. "So, if we own a group of banks, it's a way to protect us from their monolithic and slow processes."
Image via the Fairfax County Police Department Facebook page in Virginia