U.S. pension fund CalPERS faces heavy losses thanks to Strategy investment

The California Public Employees’ Retirement System (CalPERS), the largest public pension fund in the United States, has taken a painful hit on its investment in MicroStrategy (MSTR).

CalPERS faces heavy losses due to MSTR

A recent SEC filing revealed that CalPERS acquired 448,157 shares of MicroStrategy (MSTR) during the third quarter, investing more than $144 million in the position.

However, following a sharp sell-off in the stock, the value of this holding has dropped to roughly $80 million within just a few months.

While the decline represents a steep percentage loss, the impact remains structurally manageable for CalPERS. The fund oversees more than $550 billion in assets for over 2 million public sector workers and retirees, meaning the MSTR stake is only a small, though highly volatile, part of its vast portfolio.

The 45% plunge in MSTR’s share price this quarter is closely tied to Bitcoin’s downturn. Broader risk-off sentiment has further pressured high-beta tech and cryptocurrency-related assets, amplifying the losses.

Looking ahead, the biggest structural risk for MicroStrategy may not be price volatility alone.

 Instead, the company faces the possibility of exclusion from major equity benchmarks, including the MSCI USA Index and the Nasdaq 100, which could significantly impact investor demand.

JPMorgan flags the same threat

JPMorgan has flagged a key risk for MicroStrategy (MSTR), stemming from its heavy reliance on Bitcoin [BTC]. This reliance allegedly violates index rules designed to distinguish operating businesses from pure investment vehicles.

The stakes are high because passive funds track these benchmarks and currently hold nearly $9 billion worth of MSTR stock. An exclusion from the indices would therefore carry significant consequences.

According to JPMorgan, removal from the MSCI USA Index alone could trigger up to $2.8 billion in outflows. If other index providers follow suit, the impact could rise to as much as $8.8 billion.

MSCI is scheduled to announce its decision by January 15. Should MSTR be removed, passive funds would be forced to liquidate their positions.

MicroStrategy’s growth strategy has relied on issuing stock to purchase Bitcoin and using rallies to raise additional capital. This approach has pushed MSTR’s market value far above the actual value of its Bitcoin holdings, amplifying both its exposure and its vulnerability.

What’s more?

MSCI views MSTR as a passive fund, a classification strongly contested by CEO Michael Saylor, who cites the company’s $500 million software business and its active capital raising efforts.

Investment bank TD Cowen also projects that an exclusion could trigger up to $8 billion in forced selling.

While MSTR assures its assets cover its debt by a 5.9x ratio even if Bitcoin drops to $74,000, market skepticism persists regarding its shrinking multiple-to-net-asset-value (mNAV).

Final Thoughts

• MSTR’s 45% stock drop is linked directly to Bitcoin volatility and general risk-off sentiment.
• The key threat is MSCI index exclusion, risking up to $8.8 billion in passive fund selling.