Initial coin offerings (ICOs) took off in 2017, and over the past 14 months they have raised nearly $4.5 billion in capital, TechCrunch recently reported.

But deep-pocketed institutional investors are largely staying away for several reasons, including restrictions these investors face, Ken Bertsch, executive director of the Council of Institutional Investors, tells ThirtyK.

“I know our members are fascinated by it, but we’re not hearing from any of them that they are actually looking into it,” says Bertsch, whose organization represents members with a combined $28.5 trillion under management. “It’s highly speculative and many feel the industry is not well defined. Is it a security or not, for example. Also, our members want to invest in purposes that they understand.”

One tenet of institutional investing is the importance of portfolio diversification, and some experts say bitcoin (BTC), the first and largest decentralized cryptocurrency, can constitute a small slice of an investment pie. In a recent report titled “The Case for Bitcoin for Institutional Investors: Bubble Investing or Fundamentally Sound?,” Jim Kyung-Soo Liew of Johns Hopkins University and Levar Hewlett of the Maryland State Retirement and Pension System write that bitcoin provides unique diversification to a portfolio and has delivered a historical return-to-risk ratio that appears attractive. They say the optimal portfolio allocation to the original cryptocurrency is 1.3%.

If bitcoin can make up a piece of a portfolio, the implication is that cryptocurrencies resulting from ICOs might too.

ICO Investment Challenges for Each Institutional Investor Category

Institutional investors fall into several categories, including mutual funds, pension funds, foundations and endowments, and private equity, Bertsch says.

Mutual funds must register with the Securities and Exchange Commission, in order to list their funds on the various exchanges where they are traded. But because ICOs are not registered with the SEC, mutual fund portfolio managers aren’t able to invest in them, Bertsch says, adding that the SEC sent a staff letter out earlier this year on this matter.

“I have not heard of any pension funds investing in ICOs and would be surprised if they did since it is such a speculative investment”

Pension funds also have restrictions that make ICO investing virtually impossible for these institutional investors, he adds. In theory, pension funds can invest in ICOs and cryptocurrencies, but in practical terms they must abide by the Employee Retirement Income Security Act (ERISA) of 1974. Under ERISA, those who manage and control the pension fund have a mandated fiduciary duty, which includes making prudent investments and doing so under certain time horizons.

“I have not heard of any pension funds investing in ICOs and would be surprised if they did since it is such a speculative investment,” Bertsch says.

Foundations and endowments across the nation, with exception to those in the state of Pennsylvania, abide by the Uniform Prudent Management of Institutional Funds Act (UPMIFA). Under this act, foundation and endowment boards must invest with an eye toward prudent standards, but they also have the freedom to consider total-return investing, according to a report by the Council on Foundations. Like pension funds, foundations and endowments could invest in ICOs, but they may encounter pushback from donors or state agencies that regulate nonprofits.

Private equity and hedge fund managers have the greatest freedom to invest in ICOs, Bertsch says. That’s because the only main issue they need to contend with is ensuring all their capital comes from accredited investors. An accredited investor, according to the SEC, has earned income of $200,000 for an individual or $300,000 for a couple.

Arrington XRP Capital last year launched a $100 million cryptocurrency hedge fund to invest in ICOs and other crypto assets. Polychain Capital Fund, a crypto hedge fund, has already invested in several ICOs, including Kik, Basecoin and Republic Protocol, according to Crunchbase.

“Private equity and hedge funds have the most freedom to invest in ICOs and cryptocurrencies, and I believe they are the only ones who are investing in it,” Bertsch says. “But if ICOs and cryptocurrencies become regulated, which is what the SEC wants and we support, it would help with investor confidence and investment logic.”




Dawn Kawamoto
Dawn Kawamoto is an award-winning technology and business journalist, whose work has appeared in CNET's, Dark Reading,, AOL's DailyFinance, and The Motley Fool. She has also covered the technology jobs and careers market for