In early May, Fairfax county in Virginia considered diverting pension funds into two crypto funds. They planned on utilizing yield farming to generate hefty returns. Fast forward to today, the board members of the Fairfax County Retirement Systems have green-lit the decision.
Virginia’s pension fund plans come on the heels of Terra’s demise, which was a popular yield farming tool. Terra’s collapse sent shockwaves across the entire industry. Several crypto lending firms such as Celsius Network, Voyager, and Three Arrows Capital, went underwater due to their exposure to the Terra network.
According to the chief investment officer of the Fairfax County Police Officers Retirement System, Katherine Molnar, some of the yields are really attractive as many have stepped away from the space.
Is investing pension funds into crypto safe?
Given the recent fall of major crypto lending firms, the industry is still shrouded in uncertainty. Moreover, investors of the firms that are now underwater have been severely hurt. Not to mention, some even lost their life savings. With that in mind, using pension funds for yield farming might seem like a dangerous game to play.
However, the pension managers said that they have done extensive research before making their decision. Molnar said that they are convinced of their original thesis. According to her, things will rebound and stronger technologies will “probably survive.”
With the recent market turmoil, the county’s initial investment in the crypto sector is estimated to take a 50% hit. However, their investment is still up by 350%.
Andrew Spellar, investment chief for Fairfax County Employees, told Financial Times,
“We started in venture capital and private equity. But once we got more comfortable in the space, we started to think a bit broader about how we might be able to use strategies in digital assets in other parts of the portfolio.”
Nonetheless, this is not Fairfax county’s first run-in with crypto investments. In 2019, it was one of the first U.S. counties to put money into crypto investments.
The Fairfax system recently invested $35 million in the digital yield fund of Parataxis Capital and the new finance income fund of VanEck. Both funds seek to generate income for investors through short-term loan agreements with crypto and digital asset entities.