Morgan Creek Digital has scored what it says is probably the first investment in the crypto asset universe from a U.S. pension fund.

Two pension plans in Fairfax County, Virginia are anchor investors in a new $40 million venture-capital fund, according to a statement from the company. Other investors include an insurance company, a university endowment and a private foundation, said Morgan Creek Digital founder Anthony Pompliano, who declined to provide further details.

Many institutional investors, which crypto enthusiasts believe will be drawn to digital assets because of their volatility and potential out-sized gains, have been deterred by market manipulation and a lack of regulation. The Virginia pension funds join a handful of institutions to invest in the crypto world, including Yale University, the second-largest endowment in higher education that invested in a digital assets fund last year.

Fairfax County Retirement Systems manages three separate defined benefit plans, two of which invested in the Morgan Creek Digital fund, said Pompliano. Katherine Molnar, chief investment officer of one of the funds, said in a statement that blockchain technology, which was first developed to record the movement of Bitcoin, is an “emerging opportunity” that offers an “attractive asymmetric return profile.”

Betting on Innovation

Pompliano said his new fund is structured like a traditional venture capital fund that will invest in the equity of companies in the blockchain and digital assets industry. The fund will also hold a small percentage of its value in liquid cryptocurrencies, such as Bitcoin, said Pompliano. Bitcoin lost about 75 percent of its value in 2018.

“There’s a belief in the institutional world that if the industry will be around for a long time, it will be very valuable,” Pompliano said in a phone interview. “The smart money is not distracted by price but looks at the long-term trends, and believes they’re betting on innovation as a great way to deliver risk-mitigated returns.”

Morgan Creek Digital, which is an affiliate of the investment manager Morgan Creek Capital Management LLC, exceeded its original target of $25 million for the fund. Its pitch: all traditional assets will eventually be represented by digital tokens, while the influx of intellectual capital into digital assets will create positive returns. It also argues that cryptocurrencies are not correlated to traditional assets, giving investors unique exposures.