Filed Pursuant To Rule 433
Registration No. 333-180974
January 7, 2013
SPONSORED REPORT REAL ASSETS An alternative asset class for an investment world of uncertainty and volatility The lure of real estate, gold, infrastructure, oil and gas, and commodities is growing as global capital markets transform themselves yet again. orking against a near constant backdrop of uncertainty and volatility, investment managers are increasingly making room in their portfolios for real assets. These tangible assets—whether gold, real estate, infrastructure, oil and gas or commodities like corn and cotton—not only offer investors a way to pump up returns in today’s dismal interest rate environment.They also can hand investors a way to diversify and stabilize their portfolios with a class of investments carrying less volatility than equities. W At the same time, this asset class can serve as a better hedge than stocks and bonds against the perennial threat of inflation. “The trend is increasing, given the U.S. and foreign governments’ recent monetary policies and investors’ belief that at some point in the future – the big question is when – this has the risk of causing inflation,” says Jonathan Smidt, a member of Kohlberg Kravis Roberts & Co. and head of KKR Natural Resources, the firm’s oil & gas platform. Not even well known a decade ago outside a circle of large, sophisticated investors, real assets today are attracting more and more attention. “We believe that real assets are in tremendous demand,” Bruce Flatt, chief executive officer of Brookfield Asset Management told investors gathered at the firm’s recent annual investment conference in New York City. “That’s be- cause they offer very favorable long-term, risk-adjusted returns, they generate good cash and they have much lower volatility than most things out there. “And should we ever head into inflation over time, there are many inflation-hedging attributes in many of these assets.” Based in Toronto and New York City, the giant real estate company also manages a global portfolio of alternative assets valued at more than $150 billion and invested on behalf of clients. Brookfield’s assets are concentrated in property, renewable power generation, infrastructure and private equity. Analysts at J.P. Morgan Asset Management agree that real assets are gaining more and more acceptance as an December 2012/January 2013 Institutional Investor Sponsored Report 1
The New Relevance of Gold By Aram Shishmanian e live in a world of extraordinary and of gold after more than two decades of sales. This shift Waccelerating change. In today’s complex and has been driven by both emerging markets needing to challenging environment gold has never diversify their foreign reserves and European central been more relevant. This new relevance for gold is driven banks retaining this important asset for preserving by fear on the one hand and optimism on the other. The national wealth. The net result represents an important growing wealth and increased consumer demand of structural shift in the gold market, with central banks now relatively young populations in the East contrasts sharply representing a substantial source of new demand. Whilst with ageing citizens of the debt-burdened and sluggish central banks have been bolstering reserves, demand for economies of the West. gold as a high quality liquid asset and as 2012 was a year of continued uncert- collateral has also been building. ainty and widespread lack of confidence Gold’s role in the financial system has in the financial system as well as the become increasingly relevant with many solutions on offer from policy makers. clearing houses and trading institutions Heightened currency and sovereign now accepting gold as collateral. ICE debt risk have reduced the range of high Clear Europe, a leading European quality liquid real assets that investors derivatives clearing house and LCH. can use to protect wealth and provide Clearnet both accept gold as collateral as security and stability. does JP Morgan via its tri-party collateral In the East, however, we see a very management arm. different picture, with the leading More recently, the use of gold as collateral economies in the Asia Pacific region set for the issuance of sovereign bonds has to increasingly drive a large proportion been suggested as a strategy to ease the of global growth. While there have been Aram Shishmanian burden of austerity measures. Eurozone CEO, World Gold Council signs of a dampening of China’s economic countries, with sufficient gold reserves, growth and high inflation continues to weigh on the could use their gold as collateral to reduce debt servicing Indian economy, over the longer term these economic costs. Using part of a nation’s gold reserves in this way powerhouses will continue to forge ahead. The OECD would enable it to borrow more cheaply through bridge-predicts that Chinese and Indian consumers will account financing. Gold has been used before to secure loans in for around 40% of global middle-class spending by 2030. Portugal, Italy and India and current consideration of These divergent forces of fear and growth are this proposal again highlights the development of gold as reinforcing the relevance of gold as a real asset that an asset class with unique and widely applicable benefits. preserves wealth. Investors across the institutional, In an uncertain world where people increasingly public and private sectors are seeking to enhance risk search for stability, authenticity and transparency, gold’s management as they search for enduring returns. This relevance will continue to grow as it becomes more is particularly relevant for pension funds which are deeply embedded in the fabric of the financial system and seeking stable growth to fund retirements and fulfill in the wealth of nations, institutions and families. their obligations to retirees. The quest for balance has led to a fundamental re-evaluation of the benefits of investing in gold. For example, over the past year or so, we have seen a number of Japanese pension funds introduce an allocation to gold into their portfolios. This is indicative of an emerging attitudinal shift. We have also recently seen a reversal in a long-term trend in which central banks have become net buyers www.gold.org Institutional Investor Sponsored Statement December 2012/January 2013
SPONSORED REPORT essential portfolio component alongside the tradi- The Arab Spring in 2011 unleashed more uncer-tional equities and fixed-income bonds. They of- tainty and instability throughout an already vola-fer investors what analysts at J.P. Morgan are calling tile region, from the chaos in Libya to the recent optionality” —the ability to offer a stable source of clashes between Israel and the Palestinians in Gaza. income in weak markets and a chance to ride the Investors are always warily eyeing the simmering upside of equities with less volatility standoff over Iran’s nuclear program and the pos-And as uncertainty seems to be the only predict- sible disruption in global oil supplies. Says Henry H. able characteristic of today’s global economy, the McVey, head of global macro and asset allocation Bruce Flatt shift toward real assets is set to expand. at Kohlberg Kravis Roberts & Co. in New York, in a Brookfield Asset Management Allocations will grow over time,” says Bernard report published earlier this year, real assets could “We believe that real assets are in tremendous McNamara, executive director and product man- serve as a hedge against skyrocketing energy prices ager at J.P. Morgan Asset Management’s Global Real and related economic repercussions.” demand, because they offer very favorable long- Asset Group in New York City. Depending on inves- The anemic growth in the United States and the term, risk-adjusted returns, tors needs, such as their liquidity requirements, al- euro zone’s worrisome debt problems will only they generate good cash locations could reach 25 percent. The allocations increase reliance on emerging markets for higher and they have much lower within the real asset class will also shift as investors returns. Even as China’s appetite for natural re-volatility than most things move from more traditional holdings like core real sources is reined in by its slower economic growth, out there.” estate in the United States, to housing in China the demand by consumers and businesses in a na-and other emerging markets, infrastructure like toll tion of more than 1.3 billion people bodes well for roads and utilities, and shipping. investments in commodities, says McVey. He points Brookfield expects the real assets class will cap- to Chinese consumers’ demand for commodities ture between 30 percent to 50 percent of the port- such as corn and cotton and the country’s need to folio pie by the 2020s. import oil. “Emerging markets are big and getting bigger. Capital Markets Transformed Their combined consumption is now not only Analysts agree that the shift to real assets is the larger than that of the United States, but growing Jason Toussaint latest of several transformations that global capital faster,” says McVey, pointing to the urbanization of World Gold Council markets have undergone since the 1970s and 1980s, countries like China and India. “It (development of ETFs) when fi xed-income instruments captured the ma- As sophisticated investors expand their port-also democratized gold jor portion of the portfolios of institutional inves- folios into emerging markets, non-traditional in-investments. Large hedge funds and small investors tors. Flatt estimates that most managers of pensions ation- ghting investments like oil and gas and could participate. They were funds and sovereign funds had about 90 percent of farmland become even more important,” says paying the same prices. It their portfolios sunk in fixed income vehicles and McVey. Why? Because in many instances food leveled the playing field.” 10 percent in equities during those two decades. In and energy costs represent one-third to one-half the 1990s, equities began luring more investment of the infiation index in large markets like India dollars and typically had captured about 30 per- and China. To this end, owning real assets as a cent of fund allocations. hedge shifts from being a luxury in the portfolio At the beginning of the 2000s, alternatives such to a prerequisite for success.” as private equity began to emerge, and real estate We view real estate as an elegant way to own gathered steam. Brookfield is now seeing infra- an income-producing infiation hedge,” McVey adds. structure assets coming close to 5 percent of al- And even though infiation is not an immediate locations in global funds while real estates lies at threat for portfolio managers, the current policy of 10 percent. Investors are attracted by yields that many governments around the world to hold nomi-range from 7 percent to 15 percent, depending on nal interest rates below their nominal gross domes-Henry McVey the risk and type of asset. That compares favorably tic products, in order to reduce their debt burden, Kohlberg Kravis Roberts & Co. to current yields on a long-term bond of less than usually creates infiation over time. “As sophisticated investors two percent or the possible average eight percent And as Wall Street shrinks its balance sheet com-expand their portfolios into emerging markets, return on a stock. mitments to the real estate industry, the asset class And in today’s volatile political world, where offers attractive rates of return for new players with non-traditional infiation fighting investments like workers riot against austerity measures in former patience and time. oil and gas and farm- safe havens like Greece and Spain and civil wars Yet McVey and others warn that investors need land become even more to exercise selectivity and be careful of core loca-break out in oil-producing regions in the Middle important.” East, real assets can act as a buffer. tions, such as prime areas in NewYork and London, 4 December 2012/January 2013 Institutional Investor Sponsored Report
SPONSORED REPORT that carry hefty price tags. “The key is to under- gold investments,” says Toussaint, who is based in stand which locations will benefit from the secular New York City. Large hedge funds and small inves-growth drivers in employment, including manufac- tors could participate. They were paying the same turing, re-shoring, oil and gas exploration, educa- prices. It leveled the playing fi eld.” tion and technological/health care advances,” says Hedge fund firms have increasingly used ETFs of McVey. all types to diversify their market-betting strategies Infrastructure also offers opportunities. Some of and boost their returns. Now investors of all sizes the lowest-risk infrastructure sectors are regulated and types have the chance to tap into these gold utilities in electricity, natural gas, and water and exchange-traded products, which include ETFs, Bernard McNamara wastewater services, along with contracted elec- closed-end funds (CEFs) and exchange-traded J.P. Morgan Asset Management “Allocations will grow over tricity generation assets, J.P. Morgan Asset Manage- notes (ETNs). time. Depending on investors ment notes in“The Realization,”a report published The exchange-traded products aim to track needs, such as their liquidity earlier this year. Joseph K. Azelby, head of global the price of gold and are traded on major stock requirements, allocations real assets group at the firm, says the cash flow in exchanges from London to Mumbai to New York. could reach 25 percent . The these assets is very stable as demand is fairly inelas- Each gold product has a different structure out- allocations within the real asset class will also shift as tic and rates are often set by local governments. lined within its prospectus and the instruments do investors move from more not necessarily represent holdings in physical gold. traditional holdings.” The Safe Haven Gold ETNs, for example, generally track the price Gold, a perennial favorite during times of global of gold using derivatives. But many of the currently economic crisis, is another real asset class that has available products are backed by gold bullion held been drawing increased attention for more than in secure vaults. a decade. This precious metal has always been a The largest of the physical gold bullion-backed vehicle for capital preservation and viewed as a ETFs is SPDR Gold Shares (GLD). It was the first of safe destination when financial turbulence erupts. these types of product to be made available in the The gold market gained greater stability more than United States and its primary listing is on the NYSE a decade ago with the adoption of the Central Arca. Previously known as ArcaEx, an abbreviation Bank Gold Agreement in September 1999 during of Archipelago Exchange, NYSE Arca is headquar- Jonathan Smidt the International Monetary Fund annual meeting tered in Chicago. Kohlberg Kravis Roberts & Co. in Washington D.C. A second version was signed in Much of the recent gains in gold-traded prod- “The trend is increasing, given the U.S. and foreign 2004 and the pact was extended in 2009. ucts can be attributed to temporary political fac-governments’ recent Though not an international treaty as defi ned tors such as the United States’ presidential election monetary policies and and governed by international law, this gentle- and Europe’s fi nancial woes. But central bank gold investors’ belief that at men’s agreement among central bankers gave buying continues to provide long-term underlying some point in the future– the big question is the gold market a dose of needed confidence. support to gold prices. Since 2010, central banks when—this has the risk Central bankers agreed to dispose of their gold have become large net buyers of gold, equivalent of causing infiation.” in an orderly fashion. to about 10 percent of total supply. “This was part of the paradigm shift in gold Interestingly, most of the buying has been by cen-investing that began around 2000,” says Jason tral banks in emerging markets, increasingly eager Toussaint, managing director, United States and to diversify their assets and curb their very heavy investment, at the World Gold Council. Based in exposure to the U.S. dollar and euro. This trend is London with offices around the world, the coun- likely to continue as the debt and fiscal issues fac-cil is an association whose members include ing both Europe and the United States won’t disap-gold- mining companies. pear anytime soon. Another significant milestone in the develop- Yet investments in many real assets come with ment of gold as a real asset has been the use of their own set of drawbacks. The downside includes Joseph K. Azelby gold exchange-traded funds, or ETFs, over the past higher carrying and storage costs, increased trans- J.P. Morgan Asset Management decade. No longer solely a physical commodity action fees, and lower liquidity than financial as- Some of the lowest-risk infrastructure sectors that requires expensive and time-consuming stor- sets such as stocks and bonds. are regulated utilities age and transportation costs, gold trading now has And investors need to be mindful that the bull in electricity, natural acquired a new fiuidity and efficiency. It can be market for real assets started more than a decade gas, and water and listed on exchanges and traded and cleared effi - ago.To use a baseball metaphor, we may not be in wastewater services the ninth inning, but we’re certainly not in the fi rst,” along with contracted ciently and quickly. electricity generation “It (development of ETFs) also democratized McVey of KKR says. fiassets.” December 2012/January 2013 Institutional Investor Sponsored Report 5
SPDR® GOLD TRUST has filed a registration statement (including a prospectus) with the SEC for the offering to which this communication relates. Before you invest, you should read the prospectus in that registration statement and other documents the issuer has filed with the SEC for more complete information about the Trust and this offering. You may get these documents for free by visiting EDGAR on the SEC Web site at www.sec.gov. Alternatively, the Trust or any Authorized Participant will arrange to send you the prospectus if you request it by calling toll free at 1-866-320-4053 or contacting State Street Global Markets, LLC, One Lincoln Street, Attn: SPDR® Gold Shares, 30th Floor, Boston, MA 02111.