CalPERS stands by $144M Bitcoin investment as stock plunges 44%
California’s primary public pension fund, CalPERS, has been under scrutiny for a significant investment in a Bitcoin-related stock, which has suffered a sharp decline in value. CalPERS has more than doubled its investment in Strategy Inc., formerly known as MicroStrategy, over the past two years, with the latest SEC filing reporting holdings of nearly $144 million in the company. However, Strategy Inc. shares have plummeted from $322.21 to $181.33 per share, a notable 44% drop, as of the most recent market close on December 2nd.
Despite managing a substantial $589.5 billion in assets, CalPERS is experiencing a funding shortfall of 18%, leaving the fund with a massive pension deficit exceeding $100 billion. This deficit is covered by taxpayer dollars, putting additional strain on the state’s finances. Experts in public finance caution against the potential risks associated with investing pension funds in volatile assets like Bitcoin and leveraged companies, emphasizing the need for prudent and secure investments that align with the long-term financial health of the fund.
Marc Joffe, a public finance expert and visiting fellow at the California Policy Center, expressed concerns about the appropriateness of investing pension money in leveraged Bitcoin companies, highlighting their speculative nature and unsuitability for retirement funds. Given the substantial pension deficit faced by CalPERS, exposure to risky assets like cryptocurrency could exacerbate financial challenges and jeopardize the fund’s ability to meet its long-term obligations to retirees.
In response to criticisms, CalPERS defended its investment in Strategy Inc., emphasizing that it represents only one of many publicly traded equities in which the fund has exposure. The pension fund employs an index-oriented investment approach that covers a broad spectrum of public equities, and its overall performance should not be assessed based on the performance of a single stock. CalPERS cited its strong returns in publicly traded investments as evidence of its diversified investment strategy and commitment to optimizing returns while managing risks.
The controversy surrounding CalPERS’ large investment in Strategy Inc. underscores the challenges faced by public pension funds in balancing risk and return in a fast-evolving financial landscape. As the debate over the suitability of cryptocurrency investments for pension funds continues, stakeholders are calling for greater transparency and oversight to ensure that pension funds are managed prudently and responsibly. The outcome of CalPERS’ Bitcoin bet serves as a cautionary tale for pension funds considering high-risk investments and emphasizes the importance of robust risk management practices in safeguarding retirement savings for public employees.
