CalPERS and Its Investment in Bitcoin Proxy Stock
The California Public Employees’ Retirement System (CalPERS), which manages over $550 billion in assets for more than two million public employees and retirees, has recently experienced a significant financial setback due to its investment in the Bitcoin proxy stock, Strategy (MSTR).
Financial Setback
Initially valued at more than $144 million, CalPERS’ shareholding has plummeted to approximately $80 million in just a few months. This investment was made during the third quarter when CalPERS acquired 448,157 shares, giving the pension fund direct exposure to the volatile world of Bitcoin through traditional markets. Despite the losses, given CalPERS’ vast portfolio, this amount is a relatively small part of its overall investments.
Market Trends and Stock Performance
The downturn in Strategy’s stock, which closed around $175 on Wednesday and has decreased nearly 45% in the current quarter, reflects broader market trends that impact cryptocurrency and tech investments. Strategy’s performance has closely mirrored Bitcoin’s fluctuations, amid a general risk-averse climate among investors.
Recently, JPMorgan analysts have raised concerns that Strategy could be dropped from key equity indices such as the MSCI USA index and the Nasdaq 100. They suggested that such exclusions could result in up to $2.8 billion in asset outflows, a scenario that could create further selling pressure if other index providers follow suit.
Implications of Index Removal
The implications of index removal are crucial, especially since passive investment strategies heavily rely on stocks included in these benchmarks. Approximately $9 billion is already tied to funds that track indices incorporating Strategy, and a decision regarding its index inclusion is expected by January 15. A potential delisting would compel many investors to divest, regardless of their perspective on Bitcoin or the company itself.
Investor Confidence and Risks
As Strategy has lost its premium valuation—once trading well above its intrinsic Bitcoin value—it now sits just slightly higher than its Bitcoin reserves. This adjustment signals a waning confidence from investors in its leveraged approach to cryptocurrency. For CalPERS and similar institutional investors utilizing proxy investments to gain Bitcoin exposure, this decline serves as a stark reminder of the risks involved when traditional equity markets intersect with the volatile realm of digital currencies.
