By STEVE KARNOWSKI Associated Press
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MINNEAPOLIS — When the Houston Firefighters Relief and Retirement Fund bought $25 million in cryptocurrencies, with the fund’s chief investment officer touting their potential, retired fire Capt. Russell Harris was concerned.

Harris, 62, has attended the funerals of 34 firefighters killed in the line of duty. He was already worried about his pension after an overhaul by state and city officials cut payments as they grappled with the ability to pay out benefits. He didn’t see crypto, unproven in his eyes, as an answer.

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“I don’t like it,” Harris said. “There’s too many pyramid schemes that everybody gets wrapped up in. That’s the way I see this cryptocurrency at this time. … There might be a place for it, but it’s still new and nobody understands it.”

The plunge in prices for Bitcoin and other cryptocurrencies in recent weeks provides a cautionary tale for the handful of public pension funds that have dipped their toes in the crypto pool over the past few years. Most have done it indirectly through stocks or investment funds that serve as proxies for the larger crypto market. A lack of transparency makes it difficult to tell whether they’ve made or lost money, let alone how much, and for the most part fund officials won’t say.

But the recent crypto meltdown has prompted a larger question: For pension funds that ensure teachers, firefighters, police and other public workers receive guaranteed benefits in retirement after public service, is any amount of crypto investment too risky?

Many public pension funds across the U.S. are underfunded, sometimes seriously so, which leads them to take risks to try to catch up. That doesn’t always work out, and the risk extends not just to the funds but to taxpayers who might have to bail them out, either through higher taxes or diverting spending away from other needs.

Keith Brainard, research director for the National Association of State Retirement Administrators, said he wasn’t aware of more than a handful of public pension funds that have invested in crypto.

“There may come a day when crypto settles down and becomes adequately understood and mature as a potential investment that public pension funds might embrace them,” Brainard said. “I’m just not sure that we’re there yet.”

The U.S. Department of Labor urges “extreme care” in crypto investments because of the high risks. The recent plunge in crypto prices has caused Washington to more closely scrutinize the freewheeling industry. After the collapse of $40 billion crypto asset known as Terra, senators in both parties have proposed legislation that would regulate crypto for the first time, and Treasury Secretary Janet Yellen has called for more oversight of crypto ventures.

The Houston Firefighters Relief and Retirement Fund’s cryptocurrency investment wasn’t very big — just $15 million in what was then a $5.5 billion portfolio.

It’s not clear how that panned out in the cryptocurrency market slide this year. Officials from fund and the union didn’t respond to multiple requests for comment. But the fund bought in when bitcoin prices were close to their peak of nearly $67,000, and they’ve been on the decline since then, dipping below $20,000 in June.

The fund’s chairman, Brett Besselman, said in a first-quarter report that it was healthy with an overall rate of return of 33.7% in 2021. Houston Mayor Sylvester Turner said earlier this year that the 2017 overhaul is working well and, thanks to strong returns in 2021, has put his city’s pension funds well ahead of schedule toward eliminating their unfunded liabilities.

Houston’s experiment, which fund managers touted as the first announced direct purchase of digital assets by a U.S. pension plan, followed a series of bigger but indirect investments by two pension funds for Fairfax County of Virginia. They put over $120 million into funds that seek opportunities in the crypto world, such as blockchain technology, digital tokens and cryptocurrency derivatives. As in Houston, the Virginia investments are a tiny share of the funds’ $7.2 billion in assets.

Crypto-related investments aren’t necessarily deliberate. The Minnesota State Board of Investment manages a portfolio worth around $130 billion for several public employee pension plans and other entities. A recent report shows it held small stakes as of Dec. 31 in the crypto exchange Coinbase Global and the bitcoin miners Riot Blockchain and Marathon Digital Holdings with a combined market value of $5.3 million.