Investing in gold is likely to be a winning strategy for pension funds whether spot prices of the precious metal rise or fall, the gold fund manager of the Teacher Retirement System of Texas told Reuters on Sunday.
Speaking on the sidelines of the London Bullion Market Association's annual conference here, Shayne McGuire, director of global research at the TRS, said a lack of correlation with other assets made the metal a key portfolio diversifier.
"From a portfolio manager's vantage point, it doesn't matter what gold does, if it goes up or down," he said. "What matters is what happens to your whole portfolio, and that is really the key about gold from a pension fund perspective."
"Since gold has been trading freely, from 1971 to the present, every time the stock market has been down by more than 10%, gold has risen, most of the time substantially, with the evident portfolio effects."
"Let's say you hold 3% of your assets in gold. If gold falls sharply, you are probably going to be in a good mood, because it very likely means many of your other much larger asset classes most notably stocks are doing well. The rise in your 97% will more than compensate for the loss in your 3%," he said.
"However, if we are going to have some more bad times, you will be really happy you had that 3%."
Overall, he expects prices to trend higher, however, with the current limited exposure of major funds to gold meaning the precious metal had substantial potential for growth.
Even a relatively small redistribution of assets into bullion could have a disproportionate effect on price, he said.
"There are a variety of drivers for gold that... (in) a small asset class with a fixed supply could potentially make gold surge much, much higher than it has already," he said.
The TRS was created in 1937 to provide retirement benefits for employees of Texas' public schools, colleges, and universities, and is the largest public retirement system in Texas in terms of both membership and assets.
The scheme has nearly 1.3 million participants, and as of the end of June had assets totalling USD 92.3 billion.
Its Gold Fund has approximately USD 300 million in assets distributed among gold via exchange-traded funds and gold related equities. Gold is also held via other instruments in its multiple funds, managed both externally and internally.
