Kōura Wealth invests USD $5m of KiwiSaver funds into Bitcoin

It's been revealed that Kōura Wealth has placed increased investment into Bitcoin. According to the company's founder and managing director, Rupert Carlyon, the blend of KiwiSaver and Bitcoin could present a promising, albeit risky, investment strategy for long-term gains.

Since May 2022, Kōura's investors have committed USD $5 million to Bitcoin, an investment now valued at USD $7.5 million. Carlyon attributes this increase to astute timing of the Bitcoin cycle.

The firm has recently reallocated USD $2.3 million of these profits into other funds, aiming to capture substantial gains while continually reducing investor risk. Carlyon maintains there is a sound strategy behind this seemingly high-risk manoeuvre.

"KiwiSaver is a long-term investment product, and after withdrawing for their first house, the majority of clients will keep their KiwiSaver investments over 35 years. This long-term investment horizon aligns perfectly with the cyclical nature of Bitcoin," said Carlyon.

He explained that understanding Bitcoin's historical four-year cycle—which includes phases of Bull (rising prices), Bear (falling prices), Accumulation (levelling out of prices), and Expansion (steady growth)—is crucial. This comprehension allows investors to take a broader view of Bitcoin's dramatic price cycles and short-term fluctuations.

Carlyon added, "By investing in Bitcoin as part of a long-term strategy within your KiwiSaver, you could potentially capitalise on these cycles because you’re playing the long game by default, which is often more effective than knee-jerk reactions. This approach minimises the risks associated with high-risk, short-term trading and leverages the extended investment horizon of KiwiSaver to ride out volatility and capture substantial gains."

Discussing the potential for portfolio diversification, Carlyon pointed out that Bitcoin’s low correlation with traditional assets, such as stocks and bonds, can help achieve a more balanced portfolio. "One of the main goals is to achieve diversification through assets with low or negative correlation. This simply means when one asset class is performing well, another might be flat or even declining in value, thereby balancing the overall risk of the portfolio," he said.

Portfolio theory suggests a 3-4% allocation to Bitcoin can optimise the risk and return tradeoff without making the overall KiwiSaver portfolio excessively risky, Carlyon noted.

He emphasized the nascent stage of Bitcoin as an asset class, which presents a unique opportunity for substantial gains despite its higher risk profile. He commented on the Bitcoin exchange-traded fund (ETF) launched in the US, which attracted over USD $13 billion in investment within the first five months, showcasing investor confidence in Bitcoin's future as a store of value and hedge against inflation. Carlyon stated, "Given that the value of gold is currently USD $15.6 trillion; whereas the value of all Bitcoin is only USD $1.3 trillion, Bitcoin could be seen as a boom or bust asset class that will either continue to grow exponentially or, alternatively, be caught as the emperor without any clothes and go to zero."

However, Carlyon advised caution and shared guidelines for investing in Bitcoin through KiwiSaver. "Funds like Kōura limit you to investing 10% of your KiwiSaver portfolio in Bitcoin. Whilst this is higher than the optimal number of 3%, this recognises that there are people who will want to go higher than the optimal number. You should take a long-term, strategic view and not bail the moment things get scary. Rebalancing is also an important part of investing," Carlyon advised.

Kōura's investors initially invested USD $5 million into Bitcoin since May 2022, a sum that has appreciated to USD $7.5 million.

Carlyon highlighted their approach as one that yields outsized gains while continually reducing investor risk by reallocating profits to other funds. He concluded by saying that while Bitcoin and KiwiSaver may appear to be an odd couple, they complement each other well when considered from a strategic investment perspective.

Combining Bitcoin with KiwiSaver leverages the long-term investment horizon to navigate the cyclic nature of Bitcoin. Its low correlation with traditional assets aids in enhancing portfolio diversification, and the potential for significant returns from a relatively small allocation to Bitcoin could bolster overall portfolio performance.