Super-rich turn to hard commodities as inflation bites

The ultra-rich are increasingly buying copper, nickel and other physical commodities to shield themselves from paper-money inflation, a Swiss commodity fund manager has said.

Ronald Wildmann, who manages three Basinvest funds from Zurich, said that buying hard industrial goods “is a bit of a trend” among the rich, who see few real estate opportunities and fear devaluation of liquid assets.

“When you look what is going on today with central banks increasing money supply and governments increasing on the debt side, you get a little worried about paper money,” he said.

“As a wealthy person, the worst that can happen to you is not that your relationship manager gives you bad advice. What is much more worrisome is when you wake up in the morning and you look out the window and paper money is worthless.”

Basinvest has about $95 million in assets under management in two funds dealing in futures for metals such as nickel, platinum, zinc and palladium, as well as stocks in raw materials companies such as Rio Tinto and Xstrata.

Last June it also launched a physical commodities fund which has drawn in an additional $20 million from ultra-high net worth individuals in Switzerland and Liechtenstein, many of whom were alarmed by the collapse of Lehman Brothers and financial market wobbles.

The BI Physical Commodity Fund invests mostly in commodities that are mainly traded on the London Metal Exchange and New York Mercantile Exchange.

The purchased goods are physically stored in LME warehouses or with forwarding agents that act on behalf of the respective exchange, according to Basinvest’s report for the fund in January, when its return was a negative 5.9 per cent.

In the eight months of 2009 following its launch in May, the fund returned a positive 36.7 per cent.

Wildmann said the fund offered a solution to those unsettled by financial upheaval that shook equity and bond markets.

“What you can do is go into real assets. Real assets can be gold, art, diamonds or farmland. And they can also be industrial metals,” the former Bank Leu banker said.

Because the price of physical commodities is tied to their production costs, he said they offer a certain guarantee for those worried about the eroding potential of inflation.

“Copper always has a price and the price is never zero,” he said.

Basinvest is bullish on iron ore, anticipating that economic rebound in China and elsewhere will cause shortages in the construction material steel and in coking coal, zinc and steel alloys, pushing up their prices.

Copper’s strong fundamentals make it another top pick for the fund manager, partly because of a dearth of new projects outside of the Democratic Republic of Congo and Mongolia.