With rising demand for traditional alternative assets, investors are also looking for niche alternative investments: passion or hobby investments such as collectibles and wine.
According to a Lloyds Private Banking survey, 17% of the 500 investors interviewed held collectible investments in their portfolios. Jewelry was the most popular collectible investment, while classic cars and antiques were the most expensive hobby investments – with 10% of respondents spending more than £50,000 on an individual item. Classic cars can be a surprisingly profitable investment too: according to the Knight Frank Luxury Investment Index, the return on investment in luxury cars over a five-year period to March 31, 2016 was 161%, and the 10-year return a hefty 467%.
However, it is not just antiques, classic cars, and jewelry that HNW investors are into – interest in wine is also picking up. According to a survey by wine investment firm Cult Wines, 27% of wealth managers and independent advisors expect to see growing interest in the wine industry over the next year. Reflecting the increasing demand, the Liv-ex 1000 index, which tracks wine price development, is now at its highest level since its July 2011 peak.
Alternative investments are seen as an opportunity to invest in something that has a low correlation with other asset classes. Indeed, according to our 2015 Global Wealth Managers Survey, asset diversification opportunities are among the leading reasons for UK HNW individuals to invest into the asset class. Interest in alternatives is expected to grow going forward: 92% of UK wealth managers expect demand for alternative investments to increase over the next year.
Most commonly, wealth managers offer their clients expertise in art advisory (BNP Paribas Wealth Management has been operating in the field since 1975, for example), while in other areas clients typically have to seek outside specialist expertise. There’s also clearly some space for innovation in the secondary market, as the February 2016 launch of a passion investment platform solution for family offices and wealth managers by WealthInitiative has illustrated.
Being able to offer in-house or third-party expertise to support HNW clients in their pursuit of passion investing can be a way to strengthen client relationships, by extending them beyond traditional investment conversations.
By Katri Tuomainen, Wealth Management Analyst