The venture capital arm of the eighteenth largest pension fund in the world, OTPP – Ontario Teachers’ Pension Plan – has assets worth 191.1 billion US dollars – has to write off a nice crown: Investments in the crypto exchange FTX, which has since gone bankrupt.
© Ontario Teachers’ Pension Plan
In October 2021, the Ontario Teachers’ Pensions Plan (OTPP) invested $75 million in FTX International and its US unit (FTX.US). In January 2022, it made a follow-on investment of $20 million in FTX.US. These investments were made through the Teachers’ Venture Growth (TVG) platform alongside a number of global investors to gain small exposure to a growing area of the financial technology sector.
The investment represented less than 0.05 percent of OTPP’s total net assets and represented a 0.4 percent and 0.5 percent stake in FTX International and FTX.US, respectively. Nevertheless, it is extremely unpleasant for OTPP to have to report this complete error. Efforts are being made to limit the damage to the image, and a statement has been issued to shed light on the matter.
OTPP’s venture capital platform was established in 2019 to invest in new technology companies raising late-stage venture and growth capital. The investments are structured to provide OTPP with a return commensurate with the risk taken and to provide proprietary insight that is included in other investments in the pension scheme. Of course, not all investments in this early asset class have lived up to expectations, but beTVG has had a solid track record since its inception, according to the Ontario Teachers’ Pension Plan Board.
The investment was preceded by a close collaboration with external consultants and FTX
Ontario Teachers’ investment divisions, including TVG, perform robust due diligence on all private investments. Assisted by experienced external consultants who have financial, commercial and other relevant expertise, and often in consultation with the investment partners, due diligence is designed using materials and other research provided by the companies, to assess the risk associated with a particular investment. In the case of FTX, our underwriting process involved working closely with outside consultants and FTX to examine commercial, regulatory, tax, financial, technical and other issues. Because no due diligence can uncover all risks, especially for a new technology company, the investment in FTX has been measured moderately in relation to TVG and the plan’s overall portfolio.
The latest reports point to possible fraud at FTX, which is of great concern to all involved. OTPP fully supports efforts by regulators and others to review the risks and causes of this firm’s failure, it said.
Diversification approach is maintained
OTPP’s strategy aims to diversify investments across asset classes, geographic regions, time horizons and financial performance to reduce risk and increase returns. This supports the plan’s ability to perform well in a range of investment environments and mitigates the negative impact of a single investment loss on the fund as a whole. The level of investment in FTX reflects our approach to diversification.
OTPP will write off investments in FTX to zero at the end of the year
The financial loss from this investment will have limited impact on the pension plan given its size relative to total net assets and the company’s strong financial position, Baord said. But it is disappointed with the outcome of this investment, takes all losses seriously and will use this experience to further strengthen its approach, the statement concluded. (kb)