Morgan Creek Digital co-founder Anthony Pompliano has urged investors to add Bitcoin and cryptocurrencies to their pension funds and savings portfolios.
In a recently published letter, Pompliano opined that pension funds such as the California Public Employees’ Retirement System (CalPERS) should seriously consider adding digital assets, namely Bitcoin, to their portfolio. He suggested that cryptocurrencies stand a better chance to increase greatly over time compared to the low risk, low reward illiquid assets.
COVID19’s Impact On The Economy & Bitcoin’s Potential
He pointed out that the low-interest-rate environment creates a massive problem for public pension funds, adding that the COVID19 Coronavirus has possibly made this worse:
“COVID-19 ushered in a lot of uncertainty, while also forcing the Federal Reserve and other organizations to take drastic measures in an attempt to deal with the ensuing economic shock. One of those drastic measures was to drop interest rates to 0% through two emergency rate cuts. This floods the market with cheap capital, but it also significantly decreases the return expectations of fixed income portfolios.”
In order to avoid the drag that this will have on the performance on public pension plans, investors should consider allocating between 1-5% of their pension fund investment towards Bitcoin. Using a white paper published by Bitwise as a resource, Pompliano commented:
The study found that “allocating to Bitcoin would have significantly increased the portfolio’s risk-adjusted returns, assuming the portfolio was systematically rebalanced over time. This result was consistent across all three allocations using multiple rebalancing strategies.”
Pompliano concluded the public letter offering historic data. If an investor had allocated 1% to Bitcoin on a 60/40 global portfolio five years ago, the portfolio return would have increased from 7.2% to 9.2%, which points to a 200 basis point upside. While he stated that you don’t need to invest “ridiculous” amounts, he showed how important investment is now, rather than later.