Talked to a large institutional investor today

swissaustrian

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I met an old co-student from university times today for lunch, he is part of the management team of a major private pension trust for one of the biggest companies in Switzerland. His trust manages more than $3 billion.
We were talking about what they are doing with their money. They hold a whopping 56% of their assets in Swiss, German and US government bonds as well as money market instruments, meaning they make basicly ZERO returns on half of their portfolio. And it gets better: They have seriously considered to accquire a banking license for their trust, so they wouldn't have to park their liquidity at banks and money markets funds, i.e. face counterparty risks. Instead, they wanted to park their money directly at the SNB through their own bank. Their legal team figured out that this is prohibited by law, however: Pension trusts may not accquire banking licenses in Switzerland.
Then we went on to talk about gold as an alternative currency and he told me that his investment advisory board has declined to allow the trust to hold a maximum (!) 0.5% of it's assets in gold. They say it's "too risky". In order to understand that, you have to know that these advisory boards usually are made up of politicians, employee representatives (mostly unionized) and some senior bankers.
To make a long story short: Institutional investors are still mostly apathetic towards gold. They're going to face serious losses on their fixed income portfolios once interest rates rise.
 

Unobtanium

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Then we went on to talk about gold as an alternative currency and he told me that his investment advisory board has declined to allow the trust to hold a maximum (!) 0.5% of it's assets in gold. They say it's "too risky". In order to understand that, you have to know that these advisory boards usually are made up of politicians, employee representatives (mostly unionized) and some senior bankers.
To make a long story short: Institutional investors are still mostly apathetic towards gold. They're going to face serious losses on their fixed income portfolios once interest rates rise.
Being a college colleague of yours, this guy must be fairly smart. What was HIS PERSONAL OPINION of gold?

Are these advisory boards really that dumb? Or is there a bigger entity forcing their hand not to invest in gold?
 

swissaustrian

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His personal opinion is favorable but he is in the minority amoung his co-workers. As far as I know, he owns coins, bars and mining stocks making ~ 10 % of his personal assets.
Our education can not be credited for this appeal to gold, however. We attended portfolio management courses together and the word "gold" wasn't used once. It was just about the dichotomy between bonds (risk-off) and stocks (risk-on) plus real estate as the alternative investment. Hedge funds were mentioned as a small addition to a "well-balanced" (low "value at risk" = VaR http://en.wikipedia.org/wiki/Value_at_risk ) portfolio.

These advisory boards are made up of people with a high social standing but not necessarily financial expertise. They vote by majority on investment proposals and the majority is usually naive. Corruption is wide-spread and transparency is very low.
I don't think that there's any kind of "conspiracy" against gold on a broad scale, it's just despised by the mainstream. Some people in the upper levels of the financial industry have a clear anti-gold agenda (read this book: Ferdinand Lips - gold wars http://www.fame.org/goldwars.htm ) but they're not pressuring the lower levels. These people follow their example without questioning the motives.
 
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