Are ‘luxury collectibles’ the next big thing in alternative assets?
With economic conditions in a seemingly constant state of turmoil, investors are increasingly turning to new and inventive ways to diversify their portfolio. While private markets have now firmly moved beyond the ‘best kept secret’ stage, the diverse range of alternative assets available to investors does continue to throw up some highly intriguing opportunities.
So if direct investments, funds and real estate all seem a little ‘traditional’, how are investors deploying their capital? The latest asset class to experience a seismic shift in its popularity is the collectible asset, with investors attracted by some of the staggering returns achieved in recent years.
Investors turn to alternative assets as ‘passion investments’
A recently published article in The Financial Times highlights just how lucrative collectibles can be. Often referred as ‘passion investments’, these assets are sometimes labelled as ‘recession-proof’ due to their unique ability to outgrow inflation. Given the current economic climate, this is one of the major driving forces behind the increased interest in the market.
Examples of assets that have grown significantly in value include whisky, which has a compound growth rate of 19% over the last decade, while pink diamonds have appreciated by more than 300% since 2008.
This sort of performance means that as well as enabling investors to deploy their capital to an asset which may have some form of personal interest to them, they are also able to achieve returns that are favourable when compared to publicly traded assets that are typically subject to greater volatility.
Traditionally, the collectible assets sector was perceived as a niche playground for extrovert, ultra high net worth investors. However, with consistently strong returns being derived from assets ranging from classic cars to designer watches, institutional and professional investors are taking note. This trend was highlighted earlier this year, when Tribeca Investment Partners raised $50m for a fund that holds rare pale-violet Argyle diamonds, with a minimum investment of $1m.
Gareth Lewis, chief executive of Delio, believes that passion investments are likely to play an increasingly important role in investors’ portfolios over the coming years.
“One of the reasons we’ve seen such growth in private markets over the last decade or so is because many investors value the opportunity to deploy their capital to a ‘real asset’; something that they can see, understand or touch.”
“Traditionally, this may have taken the form of an equity stake in a company or a real estate development, for example. For many, being able to invest in a piece of art, a beautiful watch, or a particularly good vintage of wine is perhaps the purest way of combining a personal passion with the need to generate returns from their portfolio.”
The emergence of digital investor marketplaces
The growth in demand for investments in collectible assets has meant that investors are also seeking new and innovative ways of accessing opportunities. Over the last few years, an increasing number of specialist digital marketplaces have emerged that allow investors to browse through assets, explore them online, and then commit their capital to them, often without physically seeing what they’re investing in.
These online platforms have also facilitated the concept of ‘fragmented investments’ that have helped to further democratise access to assets. For example, while purchasing a classic Ferrari with an auction price of £2m may remain a pipe dream for all but the wealthiest of individuals, the opportunity to buy a ‘share’ of such a vehicle for a five figure investment creates access for a much wider audience. This structure is being replicated across assets of various values, including some where the minimum ticket size can be as little as a few hundred pounds.
While the usual caveats around risk and investor suitability remain just as important, these marketplaces are playing an important role in increasing access for investors who would have previously been priced out of opportunities.
Technology is not only helping to create easier access to collectible assets for investors, it’s also playing an important role in solving one of the traditional barriers associated with alternative assets – liquidity.
As marketplaces grow their audience and access to new investment opportunities improves, investors may also find it easier to trade assets should they need to liquidate their holdings. It’s important to note that there remains a world of difference between the level of liquidity available with publicly traded assets, but the growing importance of marketplaces is likely to go some way to remedying an issue that prevented many individual investors from considering alternative assets in the past.
While passion investments and collectible assets may have some way to go until they become a mainstream investment product, there’s little doubt that they represent an increasingly important part of the private markets landscape.
For more information on how Delio’s private markets platform is powering digital investor marketplaces across various asset classes, get in touch to arrange a demo.