When news broke out in November of the collapse of the cryptocurrency exchange platform FTX Trading, it also emerged that the Ontario Teachers’ Pension Plan (OTPP) had invested US$95 million in it. Initially, OTPP invested US$75 million into the cryptocurrency platform in 2021 before investing a further US$20 million at the start of 2022. At the time, the FTX platform was valued at $32 billion; now it is worth zero.
OTPP is the largest single-profession pension plan in Canada, managing more than US$182 billion in net assets on behalf of Ontario school teachers. Its website says that it invests “strategically across key markets and sectors to deliver steady returns”.
Before 1990, assets of the plan had been invested in government bonds only. Now, investments are made in fixed income, public and private equity markets, real estate, infrastructure, natural resources, credit, and venture capital through the Teachers’ Venture Growth (TVG) platform – hence the crypto investment.
“Naturally, not all of the investments in this early-stage asset class perform to expectations,” the statement issued by OTPP said. The statement also assured teachers that the financial losses will have limited impact because the investment represents less than 0.05% of its total net assets.
No matter the amount, the decision to take the risk is what is being questioned. It is the second questionable investment made by a major Canadian pension plan in cryptocurrency to make the recent news. The ‘Caisse de depot et placement’ for teachers in Quebec invested US$150 million into the crypto platform Celsius Network Ltd. just ten months after it had launched and lost it all when it filed for bankruptcy in July.
“It is certain, when we now look at it, that we went in too early into the sector, which was in transition”, the president at the time told the press.
Crypto currency is not without controversy. El Salvador has adopted bitcoin as a currency, while the United States refuses to recognize it as legal tender. China’s government has prohibited all cryptocurrency transactions. The sector has suffered severe cuts, with cryptocurrencies estimated to have lost US$2 trillion in value in 2022.
One teacher reported saying he expected teachers would be infuriated that their pensions had been invested in such a ‘volatile sector’ of the market.
Although Canadian teachers are some of the best-paid in the world, globally, teachers are generally not paid much in comparison to workers in other sectors, especially in high-income countries. This makes the financial stability of their pension critical, and now more so than ever, when so many are considering leaving the profession after burn-out as a result of COVID-19. Greater care needs to be paid to ensuring that the investments made by pension plans are not risky.
Generally, pension plans for teachers, from Canada to the United States, or from Kenya to South Africa are a calculation made up of the number of years the teacher has worked and their final salary. But countries are not able to cover all those costs, which is where investments are made to fill the gaps. In countries where relevant data is available, however, there is some evidence that pension funds have made more risky assumptions about the expectations of payback from their investments.
Faced with a global recession, risky choices affecting the financial stability of the teaching profession will ultimately end up making the profession even less attractive than it is and education will suffer. Given that over 60% of the world don’t actually know what crypto currencies are, and 32% who have invested in bitcoin also admit not understanding it well enough, perhaps there are better ways of investing teachers’ futures.
