The collapse of crypto platform FTX showed once again how risky investing in cryptocurrencies can be and provided some vindication for investment trusts that balked. But not all have completely ignored these assets.
Chris Clothier, Chief Financial Officer at CG Asset Management and Co-Head of Wealth Preservation at Capitalization Trust (CGT)recently reiterated its view that “bitcoin is not an ‘asset’ that we are willing to buy for our customers”.
“Events [last] year culminating with the collapse of FTX showed that…rather than creating a new financial system, crypto simply recreated a facsimile of the old financial system it sought to replace and one rather worse than its predecessor,” he wrote.
Willingly or not, Clothier’s comments remind us that some of his competitors have not always been so cautious. In 2020-21, Ruffer, director of Ruffer Investment Company (RICA), has put together a bitcoin wallet that has been the subject of much debate. The manager has long since rethought his approach and sold the exposure at a profit of $1.1 billion a few months later, acknowledging that at least in the short term, bitcoin “exhibits the characteristics of a risky asset and speculative and therefore no longer fulfilled the role we wanted it to have as an asset for protection and diversification of the portfolio”.
For the handful of investment trusts that still have exposure to crypto, the predominant approach seems to invest not so much in digital assets, but in companies that are part of the crypto ecosystem, while limiting exposure. single digit exposure.
Another Wealth Preservation Trust, RIT Capital Partners (CPR), holds about 2% of its portfolio in three crypto platforms. According to Numis, the trust had the option of investing directly in FTX, but the company never passed the executive due diligence threshold. “RIT sees blockchain as a platform technology that has long-term potential, however [it believes] asset selection is critical as there will be significant volatility as the sector develops,” Numis analysts explain.
Fintech Venture Capital Trust Augmentum Fintech (AUG) holds four crypto assets which represent approximately 7% of its net asset value. The largest holding is Gemini, a cryptocurrency exchange and wallet.
Chief Executive Tim Levene said staying at the forefront of fintech technologies is the trust’s job as fintech specialists, and that blockchain technology has a number of promising applications. “Our investment activity reflects a cautious approach, with a focus on the most developed area – institutional digital asset trading – and infrastructure investing, as opposed to any directional betting on undervalued assets. underlyings,” he said.
Baillie Gifford trusts Scottish Mortgage (STM), Baillie Gifford Growth in the United States (UNITED STATES) and Edinburgh around the world (EWI) also have small exposures (on the order of 1% or less) to a few crypto exchanges and infrastructure companies. Specifically, SMT has positions in crypto giant Blockchain.com and infrastructure company Blockstream. Hedge funds Third point (TPOS), meanwhile, has three blockchain companies in its portfolio.
Finally, in June 2022, BH-Macro (BHMG) had a 3% exposure to currency strategies, which may include digital assets. These hurt 0.9% of the trust’s performance in the first half of the year.
As regulations evolve and blockchain technologies and cryptocurrencies become more widely used, crypto assets may yet one day prove to be a more reliable holding for investment trusts. But until then, they will likely remain a polarizing topic, and investors may want to stick with managers who act very cautiously.