13 November, 2019
Are the passion investments a real alternative for portfolio diversification?
Investing in alternative asset classes could be an additional way to spend part of your capital which can potentially become extremely remunerative, being also a winning strategy at a time of high economic and political turbulence. In fact, passion investments provide diversification and potential returns, and are experiencing significant growth in recent years, especially in emerging markets.
In this context, it is interesting to notice that major companies operating in the Wealth Management market now offer consulting services on the purchasing of works of art and wines (Art & Wine Advisory), while among the Asset Managers, the first Passion Funds begin to appear, confirming the new needs of the world of Hnwi (High net worth individual, people with high individual assets). The best performing collectibles in the last decade are whisky, art, classic cars, coins, and stamps. According to the 2019 Knight Frank Luxury Investment Index, the top Rare whisky was the more remunerative collectable in 2018 with values surging by 40%.
Amongst the collectables records in 2018, reported by The Wealth Report 2019, a 60-year-old bottle of The Macallan 1926 became the most expensive bottle of whisky ever sold at US$1.5 million. While the current record price for an artwork by a living artist is $91.1 million for Jeff Koons's 1986 sculpture, Rabbit, sold in May 2019.
What are the pitfalls of the passion investments?
Despite their attractiveness, the rarity of collectibles means that they are often subject to forgery and that the market is mainly undermined by opaqueness. As such, potential investors must do their homeworks before buying a passion asset, in order to determine its authenticity, provenance and legal ownership. This will likely require the help of third parties specialists, who should also be able to assist in determining the asset's fair market value.
Knight Frank Luxury Investment Index, The Wealth Report 2019 by Knight Frank.
An innovative partnership to fight fraud in luxury goods is being promoted by LVMH, owner of Louis Vuitton and Christian Dior, which in June 2019 teamed up with ConsenSys, a global blockchain technology company, and Microsoft Azure, a cloud computing service, to unveil the launch of AURA, a blockchain platform applied to fight counterfeits in the apparel industry.
When considering purchasing an “object of desire” it is also important to remember that passion investments do not provide an immediate income: their potential return lies in their capital growth, which can take many years to materialise. On the other hand, alternative investments can provide inflation hedging, along with the pure joy of enjoyment. Investing in collectibles, especially in art, in fact, has a tangibility and aesthetical quality that no other asset can match.
Co-ownwership: a new model of art investment
Moreover, the collectibles market is no longer to be considered for ultra rich people only, as there is a constant increase in innovative initiatives which allow to buy just a share of an artwork, thus avoiding big investments and supporting a more democratic art market. With the introduction of blockchain and new art platforms which use technology, the concept of art co-ownership is increasingly gathering consensus among novices and more expert collectors. London Trade Art is moving toward this direction, offering advanced solutions for purchasing high-quality artworks, entirely or even just in part.
However, the practice is not entirely a new concept: throughout history, collectors, museums, dealers and artists have been known to share ownership of artworks in order to diversify and expand their collections. Buying artworks in co-ownership also allows buyers to share the risks and costs associated with their acquisition.
Co-ownership solutions for passion investments are fast gaining momentum and, as the online art market continues to grow, so does a new art audience in search of alternative ways to invest in art.
Recently, there was a lot of media hype around the latest edition of the London fair Frieze Masters hosted in Regent’s Park. The buzzing was caused by a portrait by Botticelli with a $30 million price tag on offer at Trinity Fine Arts Gallery.
Portrait of Michele Tarcaniota Marullo by Sandro Botticelli on view at Trinity Fine Arts, photo by Mark Dalton/Evergreen Arts
The stunning portrait by Renaissance master Sandro Botticelli, thought to be the last in private hands, was the most expensive work ever showcased at Frieze Masters and it’s an interesting example of the complexity of the dynamics of the art market. Surprisingly, the exposure of the painting didn’t lead to an actual purchase, especially because of an added complication. The portrait was in fact declared an Asset of Cultural Interest by the Spanish authorities in 1988, which means that the painting cannot be exported, according to Spain's heritage laws, and needs a licence to leave the country.
Dealer Carlo Orsi said to Artnet “it’s a fair price for the resplendent picture, given the quality and rarity of the work. In the market, it’s very difficult to price this kind of painting, but to compare with the last Leonardo, which went for $450 million, it could be a reasonable price”.
Despite the missed sale of the portrait, there was a lively turmoil around it; in fact the artwork was subject to a few collectors’ interest in its most innovative version possible: the co-ownership. As a matter of fact, sources of the gallery confirmed a growing interest by a group of Asian investors who would have bought the portrait in quotes.
The appeal around the “last Botticelli” sale is an evidence of the changing customs and mood within the art system, which is in constant search of innovative tools able to meet the needs of the new collectors. In conclusion, thanks to technological advances and more accessible purchasing models, today it is possible to transform your art passion, or any other passion, into also smart investments.
Lucrezia Di Donfrancesco - November 2019