Since you're a subscriber to this

Bloomberg podcast, we thought you'd be

interested in a sponsored podcast called

Evolving Money, produced by Coinbase and

Bloomberg Media Studios. It explains how

institutional investors are adopting the

world's newest asset class, crypto.

Here's a recent episode.

[music]

>> It's early days, right? It's only more

recently that we're starting to see true

institutional [music]

adoption start to take hold. That's

Amanda Agotti, the chief investment

officer for PNC's asset [music]

management group. And she's right. True

institutional adoption of crypto is just

starting to take hold. That's what

[music] this series is about. Who are

the big players adding digital assets to

their offerings? [music] How are they

doing it? Are they partnering up or

going it alone? and why are they doing

it now? Are they trying to get ahead of

the crowd or are they reacting to client

[music] demand? Well, we're going to

answer those questions and more in this

season of Evolving Money, a show that

explores how institutional investors are

adopting the world's newest asset

[music] class, crypto.

Hi, I'm Angie Lao. I've been a financial

reporter for decades [music] and the

people I'm talking to this season are

amongst the highest ranking decision

makers in the finance [music] industry

and that starts with today's guest

Amanda Agatti. Now Amanda leads the

investment strategy group at PNC [music]

Bank. This is a financial services

company with roots that go way back to

[music] 1845.

That's about 180 years ago. [music] Now,

between their historical roots and their

$215 billion US of assets under

management, they [music] are a bedrock

financial institution, the epitome of

old school. So, what is an old school

titan doing in the crypto space?

Well, it's just sort of the next natural

evolution of our investment offering. I

mean, we we spend a lot of time looking

at the multi-asset universe, and we're

very much capital allocators. We're in

some ways generalists. We're looking at

public markets, private markets,

equities, fixed income, alternatives,

commodities, um, structures of various

sorts. And so, crypto feels like just

the next natural evolution of the

multi-asset universe. We're really, I

think, paid and expected by our clients

and the investors that we serve to

understand where the edge is, where the

next wave of financial innovation is

coming from. And so, you know, a few

years ago, we were kind of kicking the

tires on what crypto looks like as an

industry.

um the regulatory environment had

shifted in a very unfavorable way and so

it sort of shut the lights off on some

of the areas that we were exploring from

a crypto perspective. But with a new

administration and a very different

regulatory environment in play here, it

just made a lot of sense for us to pick

it back up again. Um we think it has

staying power. Um, and so we're trying

to understand where we as a more

traditional financial institution show

up in the crypto industry, how we show

up and and how we create access um for

our clients because our clients are

really interested in it. When you bring

it to your institutional level

colleagues, okay, and you're having

these conversations and you're all

discussing we got to bring crypto to our

clients. That must have been some very

interesting conversations. What were

those conversations like bringing it to

PNC?

>> Well, it's fun to look back on it, but

at the time they were somewhat

challenging conversations. I mean, this

is this is the way the investment

business works, right? It's almost never

unanimous. There's always Monday morning

quarterbacks. There's a million

different points of view on one

particular investment idea or solution.

And so it took a a lot of I think

conversations and internal debate

particularly as it relates to the

regulatory backdrop and some of the

uncertainty around what's considered

bank permissible or not. Right? As much

as as much as we want to lean hard into

being at the forefront of innovation um

and lean hard into financial new

financial technology and and that sort

of thing. We are a very regulated

entity. We are a traditional financial

institution and so this sat at the outer

bounds of most people's comfort level

right when we think about risk

compliance legal cyber security etc. So

it took a lot of um conversations and

handholding to get everybody on board

with the idea of what we were trying to

do.

>> H so what got it over the line then?

What what was the philosophy or the

approach that got people on board? This

is not do all things and be all things.

This is literally creating access

through a really strong uh strategic

partnership with Coinbase, right? It

made perfect sense to partner with them

to connect our clients and create access

to this new opportunity set. I think

there are a ton of benefits um

institutionally speaking

>> to start heading down this path. We

learn how to connect to a completely

different trading platform. We're

learning how to operate in 247 trading

environments. We're looking at different

types of, you know, AML and cyber

related guard rails. We're going to look

at and contemplate, you know, other

coins beyond Bitcoin. You know, this

this sort of opens the door to what is

possible as it relates to stable coins.

It it was important for us to take that

step so that we can start to learn and

interact with this completely new and

different asset class.

>> What's driving the demand now in terms

of creating new products? Is it coming

from the opportunities that you see

internally? Does it come from the

marketplace or both? So there's a little

bit of uh pushpull in terms of our

organization wanting to lean further

into this financial innovation, but also

to some degree our clients kind of

asking for and wishing for advice and

guidance and education like what what do

we think about this financial

innovation? I I think what we're hearing

and what we're seeing and what we are

planning for is that we need multiple

avenues to access crypto exposure for

clients who are interested in pursuing

it. So some will go direct, right?

They'll they'll use our solution.

They'll they'll interact with the coins.

It might be Bitcoin. It might be

Ethereum. It might be Solon. It might be

something else entirely different. Mhm.

>> There are others uh that you know want

an easier potentially easier path. And

so I think the advent of some of the

ETFs that we've seen have made such a

difference in terms of ease of

institutional adoption. It's easy to

incorporate an ETF directly into an

existing multi-asset portfolio. Um so I

think that's that's an opportunity. One

of the areas that we've spent a lot of

time on over the last few years,

separate and apart from the strategic

partnership that we launched with

Coinbase and the the crypto for clients

solution that we developed is really in

private markets. Our institutional

clients in particular often get asked

and this is like endowment and

foundation nonprofit type of

institutional clients often get asked,

can you take a highly appreciated crypto

gift? what would you do with it if a don

a donor were to give you um a large

crypto gift? What what do you do? Um and

today it's hard because they have to go

set up an account somewhere to accept it

and convert it to fiat and then maybe

diversify into other types of exposures.

I think that's a natural place uh for

the evolution of this offering to go. So

in in MVP1,

we're not really handling transfers in

the way I think our institutional client

base would like to see. So that's on the

road map, you know, to incorporate

Ethereum into the offering naturally. Uh

takes you down a rabbit hole of staking,

um yield farming. There's a decent

number of elements around what it means

to incorporate Ethereum. And I think our

clients are very interested in what

staking might look like

>> and how that shows up within our

offering. So that that could be on the

road map for you know MVP2 and beyond.

[music]

when you look at risk return

correlations and liquidity, what does

the data tell you um about adding crypto

into any diversified portfolio?

>> So, we only know so much at this point,

but based on what we have seen so far,

um it is very much indeed an

uncorrelated asset. So, there is

diversification benefits to be had. um

there's a little bit of a scarcity uh

element to how uh various blockchains

and coins are constructed. So I think

that adds over time to potentially the

valuation story and the relative

attractiveness over time. Um so we we do

think that there are definitely benefits

and unique attributes of crypto as an

asset class that can add value in a

multi-asset portfolio context. The

challenge I think at the moment is this

volatility component. What we see is

about four times the volatility of

public equities. And so it's not for the

faint of heart. So when we think about

incorporating into portfolios, that's

one of the major cons, right? How how

much is a a client or an investor

willing to see some whipssawing in terms

of portfolios? There are definitely

benefits to it, but you have to be able

to stomach somewhat of a wild ride at

times, too. It's not a straight line

higher kind of kind of story. So, we're

just trying to be thoughtful about what

we think the big catalyst and the

backdrop for the industry might be and

where the path forward lies before we

start making a formal recommendation

around it. We really tend to be very

long only and buy and hold again across

the multi-asset universe. So when we

take positions in portfolios, they are

very high conviction recommendations and

they are built over a period of time. So

I think that's an important starting

place. We're very targeted and very

thoughtful. We're not hasty about making

decisions and I think that naturally

applies to how we think about the launch

of the crypto solution that we created

for our clients. That was a very

thoughtful and targeted and methodical

approach. It wasn't sort of hastily put

together. Anytime we find a secular

investment opportunity, a secular theme,

a trend, AI is a good example of this.

We think crypto potentially is another

one of those that has a really long

horizon and a really significant but

extended innovation cycle. Those are the

areas where we want to pick our spots

carefully and then continue to build

over time.

[music]

The discussions within PNC started with

questions about investing in this new

asset class, but they very quickly

expanded into something much larger.

So, there's all this focus on Bitcoin,

Ethereum, etc. But what about the

underlying blockchain technology and the

use cases and the new business models

that are being born off of that? Um,

it's really, it feels a little bit like

the advent of like web 2.0. Yeah, it's

hard to remember what it was like when

we didn't have Uber or Lyft as an

example. Now it's it's so common place.

And so so we've spent a lot of time over

the last few years looking at private

market investments, venture capital in

particular. um that has been primarily

where it's been concentrated. But other

elements of the private market or

alternative um asset classes, you can

gain exposure to crypto business models

or new companies that are being um

developed in in sort of the crypto

industry and landscape. And so for a a

decent number of years, that was the

primary way for our clients to access um

blockchain technology and crypto

oriented exposure. That's fine. Um but

not not all clients are eligible or able

or willing to invest in private markets.

You lock up capital for an extended

period of time. Um you have to be of a

certain size and scope and eligibility

uh to even invest in alternatives. So so

the things that have we have done since

then have really been designed to create

access and democratize

uh crypto for our clients. Then I think

the the big one is how much are we going

to learn out of the 247 trading

environment for crypto and when does

that start to apply to traditional

markets? Are we going to get to it?

We've talked about it a lot, right? But

we've talked about the major exchanges

extending their trading hours. We

obviously have, you know, overnight and

futures markets, uh, you know, some

level of activity there. But does this

ultimately spill over and catalyze a

24/7 trading environment? I don't sleep

that much as it is. I definitely won't

sleep in a 24/7 um trading environment,

but I think it it does make sense to be

thinking about what that looks like in a

not too distant future state. So I think

I think there's a lot for traditional

public markets to actually learn from

the crypto industry. That's how we're

thinking about it, right? We're a

traditional financial institution. We're

learning a lot from the crypto industry,

but I think it it goes both ways. And I

I think um in the end there's going to

be some really powerful innovations

um that come out of this. And it's still

very early inning. So, we're really

excited about the [music] future.

Adoption by institutions like PNC is

clear [music] evidence that the crypto

evolution is taking hold in the largest

and most influential financial companies

in the world. But the road isn't always

so smooth. [music] Amanda was pretty

clear about the challenges she faced

trying to earn internal support. And

that's going to happen anytime a big

organization tries to evolve their

processes and [music] their offerings.

So what's coming next? To get an answer

to that, [music] I asked Amanda for her

wish list moving forward.

[music]

It's it's less about me creating a wish

list for [music]

new innovations and new products and all

of that. Um, as it relates to crypto and

much more about bringing within the

walls of PNC

a lot of the capabilities and exposures

that exist today. [music] I don't I

don't need a long-term wish list of

ideas to keep me busy. I have so many

things that are sitting right in front

of [music] me to kind of lean further

into in terms of getting our clients

access [music] to and getting sort of up

the learning curve around all things

crypto that um you know it's going to

keep us busy for you know [music] the

next year or two. It doesn't it doesn't

mean that we aren't forward looking. Of

course we are. Um but I I think there's

a lot to chew on. Uh certainly in the

new year as it relates to just of some

of the existing capabilities, but we

just need to lean further into adoption

[music] and exposure and some of the

capabilities that have been developed

today.

[music]

[music]

I'm Angie Laauo on behalf of Coinbase

and Bloomberg Media Studios. [music]

Thanks for listening. There are a lot of

other illuminating conversations in our

feed, so be sure to follow Evolving

Money on Spotify or Apple [music]

Podcasts.