A Public Pension Fund Tests the Cryptocurrency Waters

Ajit Singh, CIO at the Houston Firefighters’ Relief and Retirement Fund, shared an exclusive inside look at how the fund began to invest in Bitcoin and Ethereum.

Angel Garcia/Bloomberg

Angel Garcia/Bloomberg

While some endowments and family offices have been eager to add cryptocurrencies to their portfolios, public pension funds have generally taken a more wait-and-see approach. But for one group, that changed on October 21, when the Houston Firefighters’ Relief and Retirement Fund announced that it had made its first investment in Bitcoin and Ethereum.

Ajit Singh, HFRRF’s chief investment officer, spoke with Institutional Investor in an exclusive interview Thursday about the organization’s decision to invest — and what’s next for the fund.

HFRRF has thus far allocated 0.5 percent of its $5.2 billion portfolio to Bitcoin and Ethereum. However, because the allocation target ranges between 0 percent and 5 percent, HFRRF won’t have to rebalance immediately if Bitcoin’s valuation shoots up.

Singh began looking into cryptocurrency a few years ago after noticing that family offices and endowments — organizations typically on the cutting edge of new investments — had begun to invest in these currencies. Then, in December 2020, Mass Mutual announced that along with acquiring a minority stake in institutional cryptocurrency custody provider NYDIG, it was also buying $100 million in Bitcoin.

“I thought, this may have a place in a pension fund,” Singh said.


As he dug further into the asset, Singh’s investment thesis began to develop. He referred to it as the “democratization of value accumulation through disintermediation.” In layman’s terms, he believes that the lack of central control offered by Blockchain — the ledger used to record cryptocurrency transactions — helps eliminate fees on financial transfers, especially international ones.

Singh views the fund’s foray into Bitcoin and Ethereum as an investment not only in the currencies themselves, but in the technology behind them. “[To put it simply], we’re investing in rails, not in trains.”

Nevertheless, the fund still needed to explore the asset’s risk and return profiles. “In terms of technical analysis, it’s very volatile,” Singh said. “But if you look at historical volatility, it has come down quite a bit... As the price is going up, the volatility is going down.” Singh noted, however, that volatility is just one factor that must be considered when investing in cryptocurrencies. For example, because the asset class is uncorrelated to others, it offers a significant amount of diversification.

“We did a whole analysis in terms of valuations,” Singh said. “What was holding us back was the regulatory framework.”

Singh said the lack of clarity surrounding the question of whether countries could regulate cryptocurrency, and how they would do it, held HFRRF back from making the allocation a few years ago. But he says that things have begun to change. In fact, certain rules for crypto brokers were included in the $3 trillion infrastructure bill passed by the U.S. government in August. “You don’t regulate something if you’re planning to outlaw it,” Singh said.

The firefighters who HFRRF serves were also pushing the fund to allocate capital to cryptocurrency. “Some of the firefighters were asking the board why we don’t have Bitcoin,” Singh said, adding that the pension fund beneficiaries regularly attend board and investment committee meetings. “People were curious about it.”

HFRRF’s board wasn’t against adding cryptocurrency to the portfolio, but they did need help understanding the asset class. Singh said that he spent six or seven months educating board members about how cryptocurrency works, as well as the diversification benefits it offers a portfolio.

The fund ended up finalizing its decision earlier this year, and like Mass Mutual, selected NYDIG as its custodian. Singh said the company offers over-the-counter execution, which he called a “much more efficient” operation than Coinbase.

HFRRF is also allocating capital to cryptocurrency-related investments in its private assets portfolio. The fund is currently in talks with a venture firm, with the goal of investing in early-stage blockchain technology sometime in the first quarter of 2022.

While Singh is open to adding investments like these, HFRRF’s allocation to cryptocurrencies will likely remain small — at least for the time being. “I don’t think it’s prime time to do 10 or 20 percent in the portfolio,” Singh said. “I think it’s like a spice that’s really good, but you don’t need much of it.”