AMP sparks controversy in the superannuation sector by buying Bitcoin

The pioneering decision by AMP Super to make an investment in Bitcoin has really set the cat among the pigeons in the superannuation sector.

While AMP (ASX: AMP) will conceivably get a marketing and first mover advantage by fulfilling strong investor appetite for the crypto asset, the move has already ignited a strong reaction from other firms that Bitcoin does not belong in retirement savings.

The strongest reaction came from Vanguard Australia which blasted bitcoin as having “no appropriate role” in long-term investment portfolios because the asset class is risky and lacks intrinsic value.

Investment merits are “weak”

Duncan Burns, the chief investment officer for Vanguard’s Asia-Pacific business, said the investment merits of bitcoin and other cryptocurrencies are “weak”.

He said while speculators have made money on cryptocurrencies, many have also made losses and he predicted many more would lose money in the future.

Other concerns that have been raised by investment managers within the super sector are the possibility of links between bitcoin profits and criminal activity and also the highly speculative and non-fundamental nature of crypto investments.

Valuing crypto assets is also a mystery, given the lack of underlying cash flows.

Crypto demand is there

However, there is little doubt that there is a demand from investors for crypto assets in their super and already large international fund managers including Goldman Sachs and BlackRock have been in discussions with Australian super funds about the best way they can integrate crypto investments.

It is interesting to note that AMP’s first crypto foray is quite a conservative one.

AMP made a $27 million investment in bitcoin in May, which equals about 0.05% of the fund’s $57 billion in funds under management.

That lies well within BlackRock’s recommendation that no more than 2% of a portfolio should be invested in cryptocurrency.

AMP already sitting on big profits

It also means that AMP is already sitting on some excellent profits given the strong performance of bitcoin since the election of President Trump on November 5.

AMP’s chief investment officer Anna Shelley said the investment was made after “testing and careful consideration” and said it was a “small and risk-controlled position”.

Bloomberg has reported that the investment was made through futures, which would enable AMP to hedge the position.

Ms Shelley said the move “recognises the structural changes in the industry over the past year, including the launch of exchange-traded funds by leading international investment managers.”

“While our super members have benefited from the exposure, we fully appreciate the risk and volatility characteristics of this emerging asset class and will continue to carefully manage our holding, which is a fractional component of a highly diversified asset mix.”

Several large international pension funds have already invested in crypto assets with many citing the ability of crypto to preserve purchasing power and to offer an asymmetric risk-return profile that is not related to other asset classes.