Impact limited: After FTX bankruptcy: Canadian pension fund OTPP loses millions by investing in FTX | news

• FTX Collapse Shakes Crypto Industry
• Canadian pension fund loses millions on FTX investment
• Limited impact thanks to diversification

The sudden collapse of the crypto exchange FTX shook the industry. Doubts about the company’s capital reserves meant that billions of dollars in capital were withdrawn from customers and FTX ran into payment difficulties. Competitor Binance called off a possible bailout shortly after the announcement. The company filed for bankruptcy protection in the US and FTX CEO Sam Bankman-Fried, who presented himself as a savior during the Terra/LUNA crash in the spring and helped other crypto companies financially, announced his departure.

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FTX bust sends out shockwaves

Meanwhile, according to the documents FTX submitted to the court, it has been revealed that the crypto exchange alone owes more than $3 billion to its top 50 creditors, with FTX reportedly owing more than $10 billion in total, having amassed over a million customers. Crypto companies such as BlockFi, Coinbase, CoinShares, Crypto.com and Galaxy Digital had also invested in the now insolvent crypto exchange. While the already ailing crypto lender BlockFi was hit hard by the FTX debacle and now had to file for bankruptcy itself, companies such as Coinbase, CoinShares, Crypto.com and Galaxy Digital, among others, sought transparency, disclosed their investments in FTX and tried. investors to calm down.

Canadian Pension Fund affected

The Canadian pension fund OTPP (Ontario Teachers’ Pension Plan) also faulted FTX. The pension fund was also transparent, issuing a statement on 17 November disclosing its investment in FTX.

OTPP says it invested $75 million in FTX International and its US unit (FTX.US) in October 2021. In January 2022, there was a follow-up investment of US$20 million in FTX.US. “These investments were made through our Teachers’ Venture Growth (TVG) platform alongside a number of global investors to gain small-scale exposure to a growing area of ​​the financial technology sector,” the pension fund said in its statement. The investment in FTX represented less than 0.05 percent of OTPP’s total net assets and represented an ownership interest of 0.4 percent and 0.5 percent in FTX International and FTX.US, respectively.

Investments have been measured moderately in relation

The Teachers’ Venture Growth platform was founded in 2019, according to OTPP, “to invest in emerging technology companies and to raise late-stage venture and growth capital.” TVG’s investments are structured to provide Ontario teachers with a return commensurate with risk and to deliver new insights. Although not all investments in this asset class performed as expected in the early stages, TVG has solidly achieved its goals since its inception, according to OTPP.

The pension fund states that Ontario Teachers’ investment departments, including TVG, perform strict due diligence on all private investments. “In the case of FTX, our underwriting process involved working closely with external consultants and FTX to examine commercial, regulatory, tax, financial, technical and other matters,” OTPP writes in its statement. But knowing that “no due diligence process can uncover all risks, especially in connection with a new technology company”, “the investment in FTX was measured moderately in relation to TVG and the plan’s overall portfolio”.

Thanks to diversification: losses should have limited impact

Instead, the pension fund relies on diversification and, according to its own statements, tries to spread its investments across different asset classes, regions, time horizons and economic results in order to minimize risk and increase returns. This increases the chances of delivering good results in a variety of investment environments and mitigates the negative effect of individual investment losses on the fund as a whole – as the FTX example now also shows.

The Ontario Teachers’ Pension Plan will write off its investment in FTX to zero at the end of the year. “The financial loss from this investment will have limited impact on the plan given its size relative to our total net assets and our strong financial position,” reassured OTPP. However, the pension fund is disappointed with the result of the investment. They take all losses seriously and will use the lessons learned to further strengthen their own approach, OTPP said.

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