Passion players

Written by: Jon Watkins Posted: 05/06/2019

BL62_PassionThe rich and wealthy have long been known for investing their money in so-called passion assets, such as art, cars and fine wine. But a new generation of wealthy players, with new attitudes and a social conscience, are fuelling change

Just outside Romania’s capital of Bucharest is a public viewing facility from which car enthusiasts and historians can cast an eye over 250 of the world’s most historic, rare and exotic cars – sorted by theme and perfectly presented.

The cars form the Tiriac Collection, the private car collection of Ion Tiriac, a Romanian businessman and former professional tennis and ice hockey player. Following tennis success as a player, coach and manager, Tiriac founded a private bank, the first of its kind in post-Communist Romania, which turned him into the richest man in the country. Investment in his passion for automobiles soon followed.

Tiriac is one of many wealthy investors who choose to invest their money in ‘passion assets’ – which traditionally range from cars and castles to fine art, wine and yachts. Private bank Coutts, which tracks the performance of such assets through its Passion Index, has seen clear trends in investment in and performance of these types of assets over recent years (see box).

Although classic cars, for example, dropped out of favour in terms of popularity in 2016, overall they have remained the top-performing asset for super-rich investors over the long term. In fact, returns on investments in classic cars have risen by more than 330% over the 12-year life of the index. A new classic car world record price was set in August 2017 as a result of the $22.6m sale of a 1950s Aston Martin DBR1.

So-called ‘billionaire properties’, classed by Coutts as properties worth more than $10m, have also grown in popularity as a place for the wealthy to invest their money. Since 2005, Mumbai has been the stand-out star, with properties worth more than £10m rising in value by almost 200%. 

There are other assets attracting growing interest, too. Rare musical instruments provided a 16% return in the 2016 index, which also tracked fine art, rugs, carpets and coins.

Experience drive

While these traditional passion assets and investment classes continue to offer strong yields, a number of other trends are emerging around where the wealthy are putting their money and the way they are purchasing assets.

Paul Welch is founder and CEO of Largemortgageloans.com, a business that initially helped investors to raise funds for purchasing high-value real estate but has since made a move towards jets, yachts, cars and other assets.

One shift we are seeing at present, he says, is around the way high-net-worth individuals are making purchases. “It might seem strange that a billionaire wants to come to a business like ours to raise money to buy an asset, when they could clearly buy it outright. But if you can raise credit fixed at around 2% for five years, make a 10%–20% return and hold on to your money in the process, there’s little risk and plenty of opportunity,” he says. “So we are certainly seeing a trend there, whether that’s in yachts, art, cars or jets.”

Another emerging trend identified by Welch is the shift from biggest and best towards experiences. “It’s nothing new for people to want the largest yacht in the harbour, the rarest cars in their garage, or the finest art on their walls,” he says. “But, increasingly, there’s a move towards the experience. And I think that will continue as we see more millennials – who are renowned for being focused on experience – coming into the market. 

“Yachts are a great example. Instead of just wanting the biggest yachts, investors now want them to be able to go to places they previously couldn’t – which might require the hull being reinforced to allow you to go to Antarctica, for example. One client has had a boat built to enable his family to go to see the Titanic.”

Bruce Maltwood, Director of Sarnia Yachts, echoes that view. “We are seeing boats getting bigger generally,” he says. “If you walk down the pontoons of Monaco, the average size of a boat is around the 40-metre mark. Ten years ago, it was more like 25 metres. 

“But for me the real shift is around what these boats are being used for. It’s about the experience you get from them and where you can go – we’re seeing more boats being built to go to the poles, for example. 

“Another example is Project REV, which is an exploration yacht that’s being equipped with teaching rooms, species capture and analysis tools and a system for turning plastics into fuel.”

Despite this shift towards experience, Maltwood says the popularity of yachts among the wealthy has reached something of a plateau. “We’re not seeing huge growth in the number of yachts, perhaps because it’s not hugely palatable right now,” he says. 

“We live in a very transparent period, whereby you can pretty easily identify the owner of most yachts in the harbour. In these days of post-austerity, it’s not particularly helpful for business owners who’ve just had to make job losses and defend under-funded pension funds to be seen sipping champagne on a £10m giant yacht in Monaco.”

Wealthy conscience

The rise of millennials among the wealthy, together with an increased awareness of ethical and environmental issues more generally, is creating another shift in how the rich spend their wealth, according to Wayne Atkinson, Group Partner, Guernsey, at law firm Collas Crill. “What we’re seeing now are two types of wealthy investor,” he says. “We have those who are spending their money on the slightly more quirky collections – the cars, the fine art, the wine – and those who are focused on ethical investing, which is definitely rising in popularity.

“I think they are two sides of the same coin – the driver is always that you want something that’s more interesting to talk about beyond simply, ‘I have a mixed basket of real estate that returns a good yield’.

“You want to talk about it because it’s interesting. It may be interesting because it’s cool. It may be interesting because it makes a difference. Or it may be both.” 
Atkinson continues: “What’s more, some of the asset classes are also moving towards ESG [environmental, social and governance] anyway – for example, fine wine, where the wine makers are committed to sustainable producing. I’m pretty sure that trend will continue.”

Ian Dembinski, Head of Private Office at wealth manager Rathbone, agrees that the big emerging trend at the moment is around ethical investing – and that’s likely to continue at a rapid pace. “We’re seeing an intergenerational shift right now and our challenge is how we appeal to a younger generation with different buying powers,” he says. 

“The millennials and the younger generation simply have a greater interest in impact investing – investing in a way that mirrors their ethical values while still obtaining profit. That means we’re looking for profit with purpose. And that stretches right the way through to them wanting to see those values reflected in us as a business.”

Dembinski adds: “Of course, the main driver for this trend continuing is that these funds are no longer just interesting because of their ethical values; they are now performing well in their own right. 

“Investors can now find investments they believe in ethically and which return a profit – and that’s a very strong proposition for anyone with wealth.” 

How traditional passion assets have performed in recent years

• Trophy property – Billionaire property prices grew rapidly from 2008 to 2012, increasing nearly 40%. However, after rebounding strongly following the recession, billionaire property and leisure property have both delivered modest returns in recent years.
• Precious items – Classic watch prices have recovered in recent years to stand at more than double their 2005 level, although they are 10% lower than their 2012 peak. Jewellery reached a new high in 2016,  150% since 2005. 
• Classic cars – Classic cars have provided the healthiest returns since 2005, with average prices rising more than fourfold. However, after increasing rapidly in 2013 and 2014, returns for classic cars fell in both 2015 and 2016.
• Fine art – The value of traditional Chinese works of art has fluctuated, but this is the only category in fine art for which prices have risen significantly since the financial crisis, increasing 70% since 2008. 

Source: Coutts Passion Index 2017 (the last available results)


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