AMP's investment chiefs talk up its Bitcoin bet

Love it or hate it, Bitcoin is the hottest topic in financial markets today, with AMP's investment boss detailing to Livewire why it got exposure to the token on behalf of the group's superannuation members. 

The decision that would've earned a professional investor a bus ticket to Centrelink just a few years ago, is now the subject of debates across investments boardrooms, family dinners, and pub drinks all around Australia.

"The initial investment was made in May 2024 with a face value of $27 million and the size has varied over time depending upon market conditions," said, Stuart Eliot, AMP's head of portfolio management for multi-assets, which was the team behind the decision.

AMP is not in the buy bitcoin or HFSP (have fun staying poor) camp of self-styled internet degenerates. 

Rather, the storied asset manager says its exposure is for asset diversification and equal to just 0.05% of the total funds it manages on behalf of its super clients.

Mr Eliot, who oversees $105 billion in funds under management, said its Dynamic Asset Allocation team conducted several months of research before it took exposure to bitcoin via futures positions. 

This means AMP doesn't physically or legally own the bitcoin, but has exposure to its price movements via futures positions that can be settled with fiat currency payments.

"Our models are designed to participate in bitcoin upside, but to de-risk when conditions are unfavourable," Mr Eliot told Livewire. "The models incorporate aspects such as price trends and investor sentiment.

"In our current model, it’s a diversifying return generator. We don’t forecast returns only whether the price is biased to go higher or lower in the near future as part of our model."

Future of money, inflation hedge, or liquidity bellwether?

At AMP, Mr Eliot reports into Anna Shelley, the financial services giant's chief investment officer (CIO), who has oversight of all of AMP Investments' activities and a reporting line into Melinda Howes, AMP's Group Executive, Super and Investments. 

"As an investment management team, we had a responsibility, on behalf of our members, to assess Bitcoin’s investment merits, and the probability of its outperformance continuing into the medium to longer term," Ms Shelley said. 

"After analysis, successful testing of our trading model, and healthy debate within our investment committee, we collectively determined there was opportunity to enhance the returns for our members by taking a small, tightly managed trading position.

"Bitcoin futures are an asset that behaves very differently to other asset classes held in the fund. This diversification helps reduce portfolio risk and provides potential for greater long-term returns for members."

Still, the Bitcoin price moves in mysterious ways. According to its White Paper, the token was invented post-GFC in 2009 as a decentralised, apolitical form of money free from the shackles of government control.

However, it quickly riffed off social media to morph into a hedge against the unholy trinity of government debt, deficits, and currency debasements. 

Some argue Bitcoin can still work as the future of money, although are unable to explain how the volatile token could act as a stable unit of account to price goods and services. 

"Irrespective of differing views and opinions, there can be no denying that digital assets, including bitcoin, are increasingly being recognised by many as an emerging and growing asset class," said Ms Shelley. 

"Significant structural changes, including the launch of exchange-traded funds (ETFs) by major international investment managers during the year, have further strengthened the legitimacy of the asset class among institutional investors."

Since AMP's bitcoin bet in May 2024, the price has soared about 78%, from about US$S58,300 to around $103,000 last week. However, other superannuation investors such as Vanguard have blasted the idea of buying Bitcoin.

Eliot said the position, so far, has been a winner for the investors that rely on AMP, although declined to provide too much detail on what would lead it to lose its 'diamond hands' and close out its Bitcoin bet. 

However, Mr Eliot did say it would "de-risk" if its asset allocation models signalled poor price trends and sentiment for the futures positions. 

Cash settled futures positions are commonly used in commodities trading. Airlines, for example, will hedge their exposure to future oil prices without physically storing barrels of oil in case they're asked to settle the positions. 

Tickets are cheaper if you book further out from flight dates as the airlines then have more certainty to buy oil forward at today's prices, without leaving themselves open to competition from unhedged rivals who could sell tickets at much cheaper prices in the future if the oil price plunged. 

Bitcoin itself doesn't exist in physical form and has been criticised as a limited supply of nothing. This arguably means the exchange traded fund and futures industry around it is more about financial engineering than any practical benefit. 

However, if amateur investors want exposure, they have several options. 

Buy futures like AMP, buy an ETF, use an exchange to hold your bitcoin exposure as a third-party in a similar way to a stock brokerage account, or even use a USB to cold store the bitcoin you own offline, just don't forget the password or lose the USB.

Also, beware you could lose your shirt if a third-party exchange goes bust or runs off with your money in a lightly regulated space. 

Other, theoretically safer options like ETFs carry different advantages and disadvantages around fees for example. Some hardcore Bitcoin fans advocate a cold storage or offline solution.