Investors who studied cryptocurrencies for years, then missed the danger warnings of FTX

Bankman-Fried told David Rubenstein in August of the request: “None of us have ever run a company and we want $100 million next Tuesday.

Five years have passed quickly and Bankman-Fried has become one of the “greatest fundraisers in the world”.

Bankman-Fried ended up teaming up with some of the most prominent companies in Silicon Valley to raise billions of dollars for its FTX. After collapsing rapidly over the past week and a half, that feat now looks like one of the biggest investment appraisal failures ever.

FTX’s list of blue-chip backers includes funds like the Ontario Teachers’ Pension Plan, a C$242.5 billion ($181 billion) fund that has poured money into private companies over decades. and is known to be actively interested in the corporate governance of those companies. invest in.

Ontario teachers invest $75 million in two FTX in October 2021 as part of a $420 million fundraising round, along with other major investors such as Tiger Global Management and Singapore’s state-owned Temasek Holdings. Three months later, the Canadian fund made its next $20 million investment in FTX.US.

About $300 million in that October funding went to Bankman-Fried, who sold some of his personal stake in the company, The Wall Street Journal reported, citing FTX’s financial filings. and those familiar with the transaction.

According to a person familiar with the matter, FTX’s share purchase has undergone a tougher test than usual for an investment of this size at Teachers, with multiple investment committees looking into it. . The investment is backed by Olivia Steedman, the fund’s highly regarded head of venture capital, who has worked at the fund for two decades.

Dan Madge, a spokesman for Teachers, told Bloomberg in a statement: “Prior to making the investment, our investment teams spent years monitoring the digital asset space. digital assets without exposing plans to significant, single cryptocurrency risks. TVG spent many months researching FTX, in partnership with experienced outside advisors, to enable us to assess the risks associated with the investment.”

Teachers are now clearing their entire $95 million investment in FTX.

red flag

The pension fund previously defended its process as “robust” in a statement on Thursday, adding that “no due diligence process can uncover all risks, particularly especially in the context of an emerging technology business.”

However, Ontario’s process appears to have ignored dangerous warnings – including FTX’s conflict of interest with Alameda Research and the lack of a suitable board of directors.

The latter was a particularly odd miss for Teachers, an early adopter of the view that pension funds should pay attention to their boards and the management of their investments and disclose their rights. their votes for public companies. Fund and for the first time CEOClaude Lamoureux, was at the heart of the founding of the Canadian Good Governance Coalition, an alliance of institutional investors, two decades ago.

The Ontario teacher said the FTX position represents less than 0.05% of the fund’s assets, “small-scale exposure to an emerging area in the financial technology sector.”

Some experts defend the approach. “We need to realize that the growth of cryptocurrencies over the past five, six, seven years has been huge,” said Sebastien Betermier, an associate professor of finance at McGill University. futures investors like pension funds, it begs the question, should we invest some of our assets in crypto?”

This is the second time in three months that a major Canadian pensions manager has been forced to completely wipe out a crypto investment they recently made. In August, Caisse de Depot et Placement du Quebec marked its $150 million stake in Celsius Network LLC to zero after the crypto lender failed.

Teachers Ontario launched its venture division in 2019 under the direction of Steedman, who previously worked in the infrastructure and natural resources division. Last year, the venture group, which includes about 25 investment professionals in Toronto, London, Hong Kong and San Francisco, reported a 39% return on its portfolio. Its investments include a number of larger companies, such as Elon Musk’s Space Exploration Technology Corporation, better known as SpaceX.

“As a global technology-driven innovator in the financial sector,” Steedman said in a press release announcing the October 2021 fundraising, which includes Sequoia Capital, Lightspeed Venture Partners and Tiger Global Management. , FTX is a great fit for our mission.” invested $214 million in FTX last week.

This story was published from the wire dealer’s feed without text modification.

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