Ontario Teachers fund steers clear of crypto after $95 million FTX loss

Canada’s $190 billion Ontario Teachers’ Pension Plan says it is steering clear of the cryptocurrency sector after writing off a $95 million investment in FTX, the failed digital currency exchange.

OTPP was among a number of major money managers backing FTX, with investments in 2021 and early 2022. The move was widely seen as a sign that high-profile, blue-chip investors were giving their stamp of approval to the fast-growing but lightly regulated crypto sector .

But in November 2022, OTPP wrote off its entire stake, following FTX’s dramatic collapse. The exchange’s high-profile founder, Sam Bankman-Fried, is now charged with fraud.

“We’re still working through what happened there and you’re going to be careful,” OTPP CEO Jo Taylor told the Financial Times.

“It would be unwise for us to rush” into another crypto investment based in part on “feedback from our members,” he added.

While OTPP’s investment was relatively small at less than 0.05 percent of total assets, the fund, like many other FTX backers, has nevertheless come under scrutiny for investing in a company whose founder is accused of securities fraud and looting the platform for personal gain . Bankman-Fried has pleaded not guilty to the charges.

“We took our time and did a lot of due diligence on the business. It didn’t turn out the way we thought, says Taylor, whose fund provides pensions for around 330,000 teachers and school workers.

“We weren’t necessarily shown all the information we needed to know to make a balanced decision,” he added.

OTPP wasn’t the only Canadian pension fund to get burned by crypto failures. Caisse de dépôt et placement du Québec, the country’s second-largest pension fund manager, wrote off a $150 million investment in crypto-lending platform Celsius after its collapse last year.

CDPQ has also since said that the Celsius investment marked the end of their foray into crypto.

“We’ve learned something from the investment,” added OTPP’s Taylor. “We have received feedback from our members. We apologize for any loss on your behalf.”

OTPP was one of the few global pension plans to deliver a positive return in 2022, a year hit by an unusual decline in both listed stocks and bonds, despite the losses on FTX. The fund was strengthened by its private market positions, which make up just over half of the portfolio.

The fund now sees new opportunities in real estate, an asset class where it remains “cautious” as central banks around the world struggle to bring inflation under control with aggressive rate hikes.

“The challenge at the moment, in many ways, is that the debt markets are probably pretty closed,” Taylor said. “For many real estate appraisals, there is not a lot of activity to set a mark for future transactions.”

The fund is also looking to build its exposure to private credit, where non-banks lend to private companies as flows of traditional capital dry up.

They plan to expand their investment in this area by $10 billion over the next three years and are hiring to support this effort, with real estate as a focus area.

It believes market dislocation plays to the advantage of long-term investors such as pension funds, which are not as dependent on capital and debt markets for fundraising.

“The possibilities we have seen [for real estate] in Europe, and I’m talking about the UK, Germany, France, Spain and the Netherlands, has increased for long-term capital that doesn’t necessarily depend on any of the normal market dynamics, says Nick Jansa, investment manager for Ontario Teachers in Europe, the Middle East and Africa.

“Obviously opportunities are emerging that haven’t been there for a long time . . . everything from housing to logistics to life sciences.”