s news circulates that indexing giant BlackRock is reorganizing itself with an emphasis on higher-fee alternative assets, a few are beginning to believe that bitcoin could ultimately find its place among these nontraditional assets.
Change comes slowly to institutional investors like pensions funds. In the 1950s and 1960s, pensions mostly shunned stocks in favor of bonds. Today, virtually every retirement account has an equity allocation. Pensions, insurance companies and endowments have become huge buyers of riskier exotic investments, from hedge funds and private equities to global real estate, commodities and venture capital. Since 2008, U.S. pension fund investments in alternative assets have ballooned from 7% to 20% of total assets, reaching $7.6 trillion in 2017.
On Tuesday, BlackRock, the largest asset manager in the world with $6 trillion under management, said it would undergo a massive management overhaul, in part reorganizing to focus on alternative investments. And while BlackRock declines to comment on any plans for large forays into crypto assets, it recently hired former Ripple product marketer Robbie Mitchnick to its Digital Wealth team, which uses the firm’s successful Aladdin global asset management software to build institutional portfolios. Last summer, Mitchnick and Stanford Business School professor Susan Athey published a papercalled “A Fundamental Valuation Framework for Cryptoassets,” which essentially laid out a sophisticated model for valuing cryptocurrencies bitcoin and XRP.
As an alternative asset, the appeal of crypto is that its movements are uncorrelated with the rest of the market, says Mark Yusko, CEO of Morgan Creek Capital Management, which oversees $1.5 billion in assets, including a $40 million blockchain-focused VC fund. “Stocks or bonds derive their value from factors like GDP growth, profitability and interest rates. A cryptocurrency network derives its value from usage growth, adoption, regulation and technology. All of those things are uncorrelated with traditional measures of stocks and bonds.”
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