The Charitable Corporation was established in London in 1707 with the noble mission of providing “relief of the industrious poor by assisting them with small sums at legal interest.”
Essentially, it sought to provide low-interest loans to poor tradesmen, shielding them from predatory pawnbrokers who charged as much as 30% interest. The corporation made loans available at the rate of 5% in return for a pledge of property for security.
The Charitable Corporation was modeled on Monti di Pietà, a charitable institution of credit established in Catholic countries during the Renaissance era to combat usury, or high rates of interest.
Unlike the Monti di Pietà, however, the British version – despite its name – wasn’t a nonprofit. Instead, it was a business venture. The enterprise was funded by offering shares to investors who, in return, would make money while doing good. Under its original mission, it was like an 18th century version of today’s socially responsible investing, or “sustainable investment funds.”
There are several key characteristics that stand out in the collapses of both the Charitable Corporation and FTX. Both companies were offering something new or venturing into a new sector. In the former’s case, it was microloans. In FTX’s case, it was cryptocurrency.
Meanwhile, the management of both ventures was centralized in the hands of just a few people. The Charitable Corporation got into trouble when it reduced its directors from 12 to five and when it consolidated most of its loan business in the hands of one employee – namely, Thomson. FTX’s example is even more extreme, with founder Sam Bankman-Fried calling all the shots.
Author(s): Amy Froide
Publication Date: 21 Dec 2022
Publication Site: The Conversation
Public pension plans have mostly avoided direct investments into cryptocurrencies, and for good reason. Public pension benefits are constitutionally protected, meaning taxpayers are on the hook for paying for unfunded liabilities. If a highly volatile investment, such as crypto, were to go sour, the public pension fund—thus, taxpayers—would be on the hook to make up for the shortfall and pay for the retirement benefits promised to public workers. Even though there is a potential upside in generating significant returns by investing in cryptocurrency at the right times, the risks and market swings far outweigh the potential benefits for public pension systems.
But some U.S. public pension systems are already reporting minor financial losses related to FTX, including the Kansas Public Employee Retirement System, according to the Topeka Capital-Journal:
Similarly, “The Missouri State Employees’ Retirement System lost roughly $1 million because a private equity firm it invested in was invested in FTX, the embattled cryptocurrency exchange that filed for bankruptcy last week,” the Kansas City Star reported.
Overall, the story of FTX is a cautionary tale for all investors. When it comes to public pension systems, which have largely steered clear of making direct investments in crypto, pension funds should resist the growing pressures to seek higher returns and take on risks that could expose taxpayers to major financial losses and more public pension debt.
Author(s): Swaroop Bhagavatula
Publication Date: 2 Dec 2022
Publication Site: Reason
Canada’s Ontario Teachers Pension Plan could lose as much as $95 million that it had invested in now bankrupt cryptocurrency exchange FTX.
In October of last year, the C$242.5 billion ($182.9 billion) pension fund announced that it had participated along with 68 other investors in a $420 million funding round for FTX Trading Ltd., which is the owner and operator of FTX.COM. The investment was made through OTPP’s C$8.2 billion Teachers’ Venture Growth platform.
The pension fund says TVG, which was established in 2019 to invest in emerging technology companies raising late-stage venture and growth capital, seeks out innovative companies “that are using technology to shape a better future.”
Although the pension fund didn’t say how much of the $420 million it accounted for at the time of the announcement, it recently disclosed that it invested a total of $75 million during that round of funding in both FTX International and its U.S. entity FTX.US. It also revealed that it made a follow-on investment of $20 million in FTX .US three months later in January.
Author(s): Michael Katz
Publication Date: 11 Nov 2022
Publication Site: ai-CIO