You may have read or heard that the Employees' and Police Officers Retirement Systems have invested in something called Blockchain Technology. Given that this technology is what has been used to create and run the cryptocurrency markets, you may be concerned that these are investments in bitcoin or other electronic currencies. To help you understand what these investments really are, the Investment Team and I have provided some clarification as follows:

What is Fairfax Invested In?

The Employees’ and Police Retirement Systems have invested in Morgan Creek Blockchain Opportunities Fund, which is one of a number of investment funds that Morgan Creek Asset Management manages. Morgan Creek is based in Chapel Hill North Carolina and has a total of $1.4 billion in assets under management.

How much has Fairfax Invested in the Blockchain Opportunities Fund?

The Employees’ Retirement System (ERS) has committed to an investment of $10 million, which represents 0.3% of the ERS’s total assets. The Police Officers Retirement System (PORS) has committed to an investment of $11 million, which represents 0.8% of POR’s total assets.

These investments were deliberately sized to be a small portion of each system’s assets, given that the blockchain technology industry is still in its early stages.

What are Blockchain Technologies?

The term Blockchain technology is most often considered to mean cryptocurrencies, such as Bitcoin. In reality, there are many other applications for Blockchain technologies outside of financial services and payment processing. These include:

• Digital identity systems, for secure validation and sharing of individuals’ personal and medical data
• Digital document storage, security, and delivery
• Real estate transaction routing and processing
• Software application identity verification
• Election voting identity verification
• Medical data storage and routing

Because of the security features built into blockchain technology, software applications are already being built in the above-referenced areas to replace current methods for identifying individuals’ and organizations’ identities. For example, blockchain technologies are currently being developed to replace and improve the security of current voting systems. For more information regarding this technology, IBM has a very good overview on their website.

Is This Just an Investment in Bitcoin?

No, quite the contrary in fact. At least 85% of the Morgan Creek Blockchain Opportunities Fund will be invested in blockchain technology firms. As such, this is very similar to other private equity investments made by Fairfax’s three retirement systems. No more than 15% of the funds will be invested in actual cryptocurrencies and, to-date, the Fund has no exposure to any cryptocurrencies. 

How Was This Investment Vetted?

As with any of the retirement systems’ investments, significant time and effort was spent researching the firm (Morgan Creek) and the fund (Blockchain Opportunities). Specifically:

• Staff and Board of Trustees members traveled to Chapel Hill to meet with the Morgan Creek team and to learn more about the fund being considered for investment. The Board members included members of both the ERS and PORS Boards, with both employee-elected and Board-appointed trustees in attendance.
• Morgan Creek made presentations to both Boards, at their regular monthly meetings, which included significant discussion among the Board members, staff, and Morgan Creek.
• County attorneys and outside investment counsel spent a lot of time and energy ironing out the details of the investment contracts, to ensure that Fairfax County’s interests were assured.

Is This a Risky Investment?

All investments involve risk and this investment is no different. However, as they would do with any investment, Fairfax’s investment team determined that the expected returns from this investment were in line with the level of risk incurred. This also played a big part in how much was invested.

I hope that this helps you, our members and stakeholders, better understand this investment. If not, or if you have other questions, feel free to email me at Jeffrey.weiler@fairfaxcounty.gov.

 

Thanks

Jeff Weiler
Executive Director
Fairfax County Retirement Systems