“With the advent of these ETFs people have been able to become somewhat of their own worst enemy,” Donahoe said.
Billionaire Paulson had so much conviction that he used a gold ETF to start share classes for his funds denominated in bullion, allowing investors to avoid the dollar. Most of his own $9.5 billion investment in his firm’s funds as of Jan. 1 was in the gold shares. The wager lost more than $1 billion this year, including a fund that holds shares of miners and other gold assets, according to data compiled by the Bloomberg Billionaires Index. Paulson & Co.’s four other main strategies gained this year.
Paulson’s firm has said the gold share class is still “up considerably” since beginning at an average cost of $950 an ounce in 2009. It remains committed to bullion.
Demand Intact
“The long-term trend of increasing demand for gold in lieu of paper is intact,” John Reade, Paulson’s gold strategist, said in an April statement.
The metal is also weighing on returns at Utimco, the $29.2 billion fund for the University of Texas and Texas A&M University systems. Utimco began buying gold as a hedge against dollar devaluation in 2009 and by 2011 held more than 20 metric tons -- larger than Canada’s gold reserve -- in a New York warehouse. The investment became a political weather vane in the state, where one legislator proposed a bill to move the gold to a newly created Texas Bullion Depository.
Assets Devalued
While gold helped the endowment gain more than 14 percent in fiscal 2011, it’s since been a drag. Returns were 9 percent in the fiscal year through May 31.
“What I missed was how emotional so many people tend to get on this topic,” said Bruce Zimmerman, the fund’s chief executive officer, a former Citigroup Inc. pension manager who had never owned gold before. “Gold represents less than 4 percent of our portfolio, probably encompasses about 5 to 6 percent of our thoughts and discussion but generates about 99 percent of our publicity.”
The fund isn’t selling the gold, which it holds at an average cost of $1,231 an ounce, Zimmerman said.