"Fiduciary Duty" Behind Decision to Take Gold Bullion Delivery

A HEDGE FUND manager who sits on the board of a university endowment fund that took delivery of physical Gold Bullion last year has said it was a "fiduciary duty" to take delivery, given the cost savings of doing so.

Kyle Bass sits on the board of the University of Texas Investment Management Company (Utimco), one of the top three US university endowment funds, which last year decided to take delivery of gold worth nearly $1 billion, meaning that Utimco became the outright owner of the physical gold.

Taking delivery of Gold Bullion does not necessitate taking possession. Utimco stores its gold at a vault operated by HSBC, after taking delivery on a Gold Futures position last year. 

"As a fiduciary, if you're going to own gold for the duration as a long-term investment, it costs you a certain amount of money to roll a front month futures contract," Bass told CNBC this week.

Bass explained that the cost of rolling futures contracts equated to around 90 basis points (0.9%) a year, though he addedthat calculating the rolling cost is an "inexact science".

Utimco, Bass said, compared this with the cost paying storage and insurance to vault physical Gold Bullion.

"The board was able to negotiate a deal with HSBC," he said.

"For a lot less than 90 basis points a year we store it, insure it and we own it."

"From a fiduciary perspective," Bass added, "given all of the facts, I think you're not doing your fiduciary duty if you don't take delivery."

Asked why the fund has invested in Gold Bullion, Bass explained that it was a response to what he sees as "money creation".

"I think that the pattern is set," he said. "We are going to continue to monetize fiscal deficits by expanding central bank balance sheets. You can call it what you want to call it, you can call it LTRO, you can call it quantitative easing, you can call it any kind of acronym that the powers that be want to call it. I call it money creation out of thin air, and therefore gold's got a lot further to go."

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