Some of the world’s largest and best-known institutional investors and asset managers have suffered their first major hit from the escalating crypto crisis as one-time industry poster-child Sam Bankman-Fried’s FTX crypto exchange filed for Chapter 11 bankruptcy protection after a stunningly swift collapse.
The liquidity and solvency crunch that engulfed FTX in the last few days came only a year after the group raised USD420 million in a fundraising that valued the firm at USD25 billion.
Among the group of 69 investors that backed that financing were big-name institutions such as Singapore’s state-owned investment firm Temasek, Ontario Teachers’ Pension Plan, BlackRock, Softbank, Tiger Global, and renowned Silicon Valley venture capital firm Sequoia Capital. A subsequent financing round in January this year valued FTX even higher, at USD32 billion.
FTX had been urgently trying to line up support for a rescue package from potential saviours including some of its institutional supporters, after rival exchange Binance pulled out of an earlier agreement to buy the business less than 48 hours after the bail-out deal had been announced.
But efforts to raise the billions of dollars required to stabilise the business came to nothing, with FTX filing for bankruptcy on Friday and founder Bankman-Fried resigning as CEO.
Some industry observers are characterising FTX’s collapse as the crypto industry’s ‘Lehman moment’, predicting that it will cause a significant reversal in the institutionalisation of the digital asset markets.
Sequoia had already written down its USD215 million investments in FTX to zero following Binance’s withdrawal – with a Twitter message from the firm to its LP investors pointing out that “we are in the business of taking risk”.
Ontario Teachers – which invested around USD100 million in the FTX International global exchange and its US entity, FTX.US, as part of the October 2021 and January 2022 fundraisings – said in a statement that its total exposure to FTX represented a fraction of the overall plan’s total net assets.
“These investments were made through our Teachers’ Venture Growth (TVG) platform, alongside a number of global investors, to gain small-scale exposure to an emerging area in the financial technology sector,” the statement said.
It added: “TVG was established in 2019 to invest in emerging technology companies raising late-stage venture and growth capital. TVG’s investments are structured to provide Ontario Teachers’ with returns commensurate with the risk undertaken and to provide proprietary insights that inform investing elsewhere across the Plan.”
“Naturally, not all of the investments in this early-stage asset class perform to expectations. However since inception, TVG has delivered solidly on intended objectives. While there is uncertainty about the future of FTX, any financial loss on this investment will have limited impact on the Plan, given this investment represents less than 0.05 per cent of our total net assets.”
Other high-profile investors in FTX include feted hedge fund managers Alan Howard, Paul Tudor Jones, and Izzy Englander – while FTX Ventures, the venture capital arm of FTX, recently bought a 30 per cent stake in Anthony Scaramucci’s Skybridge Capital alternative investment firm, which has been hit hard in recent months by its heavy exposure to bitcoin and other crypto assets.
