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Virginia Pension Fund diversifies into yield farming

A $6.8 billion Virginia-based pension fund plans to invest in crypto lending markets.

Fairfax County Retirement Systems recently received approval from its Board of Trustees to invest in yield farming. The decision comes despite crypto lending being at the heart of this year’s credit crunch in digital asset markets, which has left retail investors with heavy losses and bankrupted several companies.

“Some of the returns you can get from a yield farming strategy are really attractive because some of the people have retired from that space,” said Katherine Molnar, chief investment officer of Fairfax County’s Police Officers Retirement System. Parataxis Capital’s Digital Yield Fund and VanEck’s New Finance Income Fund each received $35 million from the Fairfax system.

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Incidentally, the Virginia-based pension fund had already invested in crypto before deciding to delve further into yield farming. The Morgan Creek Blockchain Opportunities Fund received $10 million and $11 million from the $5 billion Fairfax County Employee Retirement Scheme and the $1.8 billion Fairfax County Police Officer Retirement Scheme in 2019, respectively .

The initial investment was made just a year after the technology became known. “We were at a conference and overheard an academic who teaches a course on the subject,” Molnar said. “We were really intrigued by the promise of the technology and its products.”

After extensive due diligence, the pension administrators placed the initial allotment primarily with companies that provide infrastructure for the crypto markets. The two pension funds then made an additional seven digital allocations, including private equity, hedge funds, and now yield farming strategies.

“We started with venture capital and private equity,” said Andrew Spellar, investment chief for Fairfax County Employees. “But as we became more comfortable in that space, we started to think a little more broadly about how we could use digital asset strategies in other parts of the portfolio.”

Their success to date has boosted confidence for this additional venture despite this year’s market turmoil. Despite forecasting a 50% drop for the year, investment still remains up 350%. “We still believe in our original thesis,” Molnar said. “Things will recover and the stronger technologies will likely survive.”

Fidelity Investment made waves earlier this year when it announced it would allow employers to offer bitcoin to employees on their 401(k). Meanwhile, Grayscale CEO Michael Sonnenshein predicted that more pension funds would add crypto to their customers’ portfolios.

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