The Ontario Teachers’ Pension Plan has lost $95 million in the FTX collapse after missing obvious red flags and despite years of diligently studying cryptocurrency investment.
In October 2021, Ontario Teachers’ put $75 million into two FTX entities in October and three months later invested a further $20 million in FTX.US. The entire investment will be written off as zero at the year-end.
As the investment represented less than 0.05% of the pension plan’s total net assets and equated to ownership of just 0.4% and 0.5% of FTX International and US respectively, the loss will have limited impact on the Plan, said Ontario Teachers’ in a statement.
But the loss has left many wondering how Ontario Teachers managed to miss the red flags, the most surprising of which, according to Bloomberg, is FTX’s lack of a proper board of directors given that Ontario Teachers is known for being diligent about scrutinizing the governance of companies it invests in.
“Prior to making an investment, our investment teams spent years tracking the digital asset space,” Dan Madge, a spokesperson for the plan, told Bloomberg. “TVG’s (Teachers’ Venture Growth) thesis was that exchanges, such as FTX, could help refine out perspectives around digital assets without exposing the plan to significant risks. TVG spent many months on diligence of FTX, in partnership with experienced external advisors, to allow us to assess the risks associated with the investment.”
Ontario Teachers’ said that while its investment departments “conduct robust due diligence on all private investments,” no process can “uncover all risks, especially in the context of an emerging technology business.”
However, not everyone condemned the investment.
“We need to realize that the growth of cryptocurrencies over the past five, six, seven years has been tremendous,” Sebastien Betermier, an associate professor of finance at McGill University told Bloomberg. “From the perspective of a long-term investor like a pension fund, it raises the question, should we invest a piece of our wealth in crypto?”
According to Bloomberg, this is the second time in three months that a Canadian pension plan has written off a crypto investment only recently made. In August, the Caisse de Depot et Placement du Québec lost its US$150 million investment in Celcius Network LLC after the cryptocurrency collapsed.
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