In recent days it has come to public attention that NZ Funds has made the leap into the Bitcoin market. The KiwiSaver provider’s management team has decided that their growth fund is to participate in crypto currency and they believe that in the next five years crypto currency will be part of more KiwiSaver schemes.
James Grigor, NZ Funds’ chief investment officer, and his team have changed their offer documents in order to be able to invest in the relatively new crypto currency market.
Grigor has gone so far as to compare bitcoin to gold saying it has many of the same attractive trademark qualities as the precious metal. After all, gold is the go to for investors to stock up on in times of financial difficulties. “If you are happy to invest in gold, you can’t really discount bitcoin”, Grigor has stated. NZ Funds have invested around 5% of Growth Fund money. The fund itself was worth nearly $350 million by the end of December 2020.
While this opportunity may seem attractive to NZ Funds and its management team, they may be alone in this for the time being. Rivalling KiwiSaver providers see it more as a gamble than an investment-worthy asset.
“Our KiwiSaver is majority built up through traditional assets classes, your bonds and shares, and they will always be the asset classes that compound over time to give people the best retirement they can get,” Grigor said.
“But there’s going to be times when it’s not always going to be plain sailing. You may still have a positive view of those asset classes, but other opportunities present themselves,” he added.
As institutional investors from overseas such as hedge funds, pension funds and investment advisors have started investing in bitcoin, its price has inclined very sharply and this Grigor considers as the process of “legitimization” of the cryptocurrency.
Digital Galaxy, a United States company that NZ funds invests KiwiSaver money in, has also put money into Bitcoin. Grigor pointed out that Morgan Stanley, a large US bank, became the first bank of considerable size to offer its wealthy investors the opportunity to invest in bitcoin through the Digital Galaxy fund. This happened in early March.
When asked if Bitcoin was a legitimate investment class, David Beattie of Booster was quoted as saying “At this stage, we would say, ‘no’ because it’s an investment that doesn’t demonstrate risk-return properties that are acceptable from our point of view.”
“It’s too speculative at this stage,” he said.
“I think bitcoin within KiwiSaver is tantamount to gambling, not investing. I’m surprised any manager would consider it a legitimate asset class.”, said Sam Stubbs, chief executive of the Simplicity KiwiSaver Scheme.
Pathfinder KiwiSaver’s Paul Brownsey said that he sees the cryptocurrency as much too volatile and that its value and comparison to gold was overstated. He does not see its use as something that will easily take its place among the already established electronic money systems. Pathfinder is big on its low-carbon KiwiSaver funds and they do not see bitcoin as a low-carbon option seeing as “Bitcoin mining uses about as much electricity as Argentina”, said Brownsey.
National Capital director, Clive Fernandes said, “For most of the clients we advise, KiwiSaver is a huge part of their retirement savings and they want minimal risk in their accounts. At this stage, Bitcoin has still too much risk associated with it, for us to be comfortable recommending that it be a part of our clients portfolios.”
The volatility of the cryptocurrency can be seen by the movements that have happened since NZ Funds’ initial investment of US$10,000 (NZ$14,360), in October 2020. Last week it went from US$62,000 back to US$55,000, stated Grigor.
Grigor and the NZ Funds team see bitcoin’s price as continuing to rise but they are ready to move onto other assets if they believe that the momentum of bitcoin has gone.