The alternatives asset class is incredibly broad and includes property, private equity, hedge funds, hard and soft commodities, and tangible investments – which are often referred to as collectibles or passion assets.
As the term suggests, passion assets are investments which are usually sought because they give the investor pleasure as well as being a store of value. The joy of ownership might be in actually driving a vintage car, wearing some beautiful jewels, showing off a respected work of art or simply finding an extremely rare bottle of wine or stamp.
Although passion assets can give their owners great pleasure, the figures underscore that these are often serious investments. To give just one example, the rarest fine wines can fetch hundreds of thousands of pounds at auction and even lower down the scale the returns can be very compelling indeed: the Liv Ex Fine Wine 100 (a leading index for the sector) has risen by almost 28% between the end of 2016 and the end of 2021.
It hardly needs to be said that investors need a significant degree of knowledge to make serious money from wine, and any other passion asset for that matter. They have to be able to spot fakes and identify the items likely to rise in value. This is often about prevailing tastes. Certain styles of art can suddenly go out of fashion, slashing their value, for instance. Many wealth managers now have teams dedicated teams which offer this deep expertise.
There are also the costs of ownership to consider. Items will need specialist insurance and very often specialist storage too, not only for protection from theft but to prevent deterioration from humidity and adverse temperatures. The highly esoteric nature of these assets also means that buying and selling passion assets calls for specialist brokers, which can be expensive.
Investors also need to bear in mind that passion assets may not be as liquid as they need them to be when they want to turn them back into cash. Much depends on what other collectors are in the market for at that particular time and how much they are willing to pay in light of the economic backdrop. Demand can plummet in tough conditions.
That said, the rarity of passion assets is what gives them the potential to be a robust store of value. Unlike money, which is “printed” at speed during quantitative easing, a dead artist can produce no more pieces. This means passion assets can serve as a strong hedge against inflation.
Alternatives should only form a relatively modest proportion of most investors’ portfolios, and passion assets an even smaller part of that – if, that is, they are viewed purely as an investment. If, however, you buy collectibles primarily for pleasure and take any gains as a bonus, these assets could be a worthy addition to your portfolio.