While investors worry whether to reduce their allocation to real estate and commodities, one segment holds no such concerns. Families in Business showcases investments of passion: from art to wine and everything in between...
Collecting stamps and coins has long been seen as a somewhat geeky hobby, but according to Alberto Bolaffi, the third-generation owner of auction house and collection experts Bolaffi, "philately and numismatics truly are at the heart of collecting."
Collectors with a good eye for investment can certainly make lucrative returns. At a recent auction, a sheet of "½ Grana di Sicilia" stamps from 1859 sold for €36,000, despite having a starting price of just €8,500.
As for rare coins, the 100 lire "littore" of 1937 – the last gold mint of the Kingdom of Italy, of which only 249 exemplars were coined – had a starting price of €10,000 but ended up being sold for €38,400.
Interest in philately and numismatics (stamps and coins) is extremely prevalent in the UK, Germany and the US, although interest from Japan, Russia, China and India is on the rise.
However, Alberto says there is no next generation of stamp and coin collectors on the world stage and this could spell trouble down the line. Whether this is down to his belief that it requires "a higher level of education is necessary" is open to question.
Although investing in other investments of passion, such as cars or fine wines, could be seen as a more lucrative investment, Bolaffi says it is currently a good time to get involved in stamps and coins.
"If the right item is chosen, this kind of medium-term investment is a wise choice that will bring some positive results – especially when inflation seems to be so high."
However, it can be difficult for novice investors to know how to get started. Bolaffi recommends that the new investor keeps an eye on the objects related to the "significant historical events of their day".
He also offers tips on a specific items. "If you are looking for a good investment, I would suggest the first issued stamps on cover (an envelope with a stamp on the first day of issue) and the first examples of air and apace mail," he says.
The risks are similar to those encountered by any other investor, notably authenticity and qualiity. But the vagaries of demand caused by a decreasing pool of collectors are specific to this field.
Lifelong collectors with enviable collections still have their eyes on that one item that has escaped them.
"I would like to add a Penny Black (the world's first stamp) used before 6 May 1840 – the first day of issue," says Bolaffi. "Or, the new block of 36 exemplars of the Victoria Regina."
In terms of rare coins the object of his desires dates from much further back in history. If possible he would like one of the gold coins of Ancient Rome from the time of Brutus, the famous assasin of Julius Caeser.
For art's sake
Agnew's still operates from the premises it has occupied in London's Old Bond Street since 1876. The family-owned art gallery specialises in Old Master paintings and prints, and British paintings.
"One of the roles of an art dealer is to educate people about works of art and the market," says seventh-generation family member Gina Agnew. Agnew's also provides guidance on buying or selling at auction so it is well placed to see who is buying in the current climate. "People who collect art seriously tend not to be novices," says Gina.
As the gallery's contemporary art exhibition coordinator, Gina's job reflects the increasing influence of modern collections to established players such as Agnew's. Another challenge it faces concerns the rise of art
When she considers whether the clients who visit the gallery are increasingly buying art for investment rather than pleasure, Gina admits it's difficult to know people's motives. "Generally people still tend to buy for pleasure, but when they are buying at the top end of the market they also like to know that it is a safe investment," she says.
Investing in art is not a new phenomenon, but its dynamics have changed significantly says Randall Willette, MD of Fine Art Wealth Management, the first consultancy dedicated to art as an alternative asset class.
"The market has become more transparent with greater availability of data and more opportunities to apply qualitative and quantitative analysis," says Willette. "Many of today's collectors and art investment professionals have finance backgrounds and share the view that art investment can be evaluated based on a meaningful set of metrics."
Gina adds that just like the stock market, art prices tend to go up in the long term, which attracts people into the market. This is certainly borne out by a host of data – the most pertinent being the record sales in the world's auction houses led by Christie's and Sotheby's.
In May, Russian billionaire Roman Abramovich bought Francis Bacon's Triptych for $86.3 million and Lucian Freud's Benefits Supervisor Sleeping for $33.6 million. Both works made auction history as the highest auction price ever for a post-war work of art, and the most expensive living artist respectively.
One of the most significant developments in the field is the emergence of art investment funds such as Fine Art Fund I, The Art Trading Fund, Art Plus, Advanced Capital Art Fund and Osian's. Andrew F Littlejohn, managing partner of Meridian Art Partners, believes such funds are here for the long term.
Meridian currently offers two feeder emerging art market funds that invest the entirety of their assets in a BVI-domiciled master fund, Meridian Emerging Art Markets Master.
"The focus of the master fund is on contemporary art from emerging art markets," explains Littlejohn. "The premise behind this is emerging market wealth creation and its extremely positive effect on those national and regional art markets."
The minimum investment for these funds is roughly $500,000, although preference is being given to investments of $1 million or more. Littlejohn says he expects the funds to return a minimum IRR of 40% annually.
With British artist Damien Hirst further adding to the art market's state of flux by announcing that he is to put his new collection straight onto the open market – a world first – it is certainly an interesting time to invest in art. Agnew's do not seem to be unduly worried, however. "Anything that encourages an interest in works of art is a good thing in itself and also good for the market," concludes Gina.
Jewel in the crown
For the investment potential offered by jewellery, look no further than the recent actions of Laurence Graff, one of the most powerful men in the world diamond industry. In 2006 he bought the 78.10 carat Maharajah Diamond but, instead of incorporating it into the Graff stable, he sold it the very next day.
It's hard to find someone in the world more passionate about diamonds than Graff – a man who calls diamond cutting an art and claims to have handled more important diamonds than any other individual in the last 100 years. Yet even for Graff, who intends to hand the reins of the business to his son Francois when he steps down, diamonds are still a means to increased wealth.
Demand for fine diamonds of 10 carats and above and rare coloured diamonds is also strong at Leviev, the jeweller known for jawdropping gems. "Emerging markets continue to fuel demand," says Keith Gerrard, Leviev's UK managing director, taking out a piece he says is well worth investing in – a price-on-application asscher cut D flawless platinum ring cradling a 13.03 carat diamond flanked by two baguettes weighing 1.02 carats.
Award-winning pearl jewellery designer Chrissie Douglas has noticed that many of her customers consciously buy jewellery with the intention of passing something of value on to the next generation. One customer recently purchased a necklace of South Sea pearls and tourmalines. "Her intention is to pass this beautiful necklace on to her daughter who is now only three," says Chrissie, whose own daughter is the new face of her brand. "To this end, the customer requested I sign a postcard to her daughter accompanying the necklace, wishing her enjoyment
wearing it in the future."
Joey Hardy, head of jewellery at Sotheby's, confirms the growing interest in purchasing luxury goods for investment rather than pleasure is very real. She gives annual sellout masterclasses at the Sotheby's Institute in London, where CEOs, hedge fund managers and jewellery manufacturers come to study jewellery from the 1800s to the present day. "More than ever, I'm meeting people wanting to learn about and invest in contemporary designer jewellery. This is the future," she says.
However, Jason Holt, managing director of second-generation UK gem business Holts Lapidary, advises caution. "Never buy jewellery as an investment. The integral value will always remain but if the designer is not well known, it's risky," says Jason. "Buy it because you love it."
In addition to jewellery, people are increasingly buying expensive watches for their investment potential, believes Viscount Charles Dupplin, head of the art and private client division at Hiscox, Europe's leading insurer of high value homes and fine art.
"We have clients with 100 fine watches and some have never been worn. The rise of disposable wealth has meant luxury goods companies are marketing limited editions and rarity," he says.
Romain Jerome's Titanic-DNA watch made from steel salvaged from the Titanic is a good example of this as are Montblanc's Collection Villeret 1858 watches of which every component is handcrafted down to the last detail in Montblanc's Minerva workshop.
Historically, however, Patek Philippe remains the watch brand with by far the most successful record of escalating prices over time at auction. Its 10-day wristwatch created for the millennium, with an exclusive case and movement, has fetched up to €100,000 – quadruple its original retail price.
"Rarity, innovation and quality sum up to long term value," advises Christie's head of watches, Geneva-based Aurel Bacs.
When a British radio DJ paid €7.04 million for Lot 328 at the Ferrari Leggenda e Passione event this year, he became the owner of the most expensive car ever sold at auction. Given that the guide price was €3.2 million, you could be forgiven for thinking the auction house would have been the happier party. But the BBC's Chris Evans was perhaps even more ecstatic to have bagged a Ferrari 250 GT SWB California Spyder.
The Spyder, described in the auction notes as being "in wonderful condition", is considered by many Ferrari aficionados as one of the most beautiful cars ever made. It is the thirteenth of just fifty-six built and dates back to 1961. Three years later it was sold to actor James Coburn shortly after he filmed "The Great Escape" – a key factor in why its price was driven so high.
Evans is part of a new breed of investor who is buying such cars as an investment of passion. While his passion is obvious, a lack of specialist knowledge may well point other would-be investors in the direction of Florian L Seidl, president and founding partner of Carficionado, which guides and supports collectors and investors to find the best cars in the market.
Seidl left his family's machinery business to set up Carficionado following his own experiences of inefficiencies in the high-end car business. "The current boom we are experiencing as shown by the Spyder sale is fuelled by people investing in cars as an alternative investment form," he says.
Although some doomsayers believe the market has reached a peak in terms of auction prices, Seidl says the market is stable. "What I am currently telling my clients is that if they are really into something very special then they should go for it," he says.
In particular, Seidl believes there is serious money to be made if you don't focus on the blue chip models and brands. "Cars that are currently underrated include: the Maserati 3500GT, Mistral and original Ghibli; the BMW M1 and the first series of the M3; the Mercedes 190 2.3-16V; and Porsche 928s." he says.
In common with the art market there has been much talk of car investment funds, but while the art world has begun to embrace such funds car investors will have to wait a while longer. "The idea of a car fund has been heavily discussed in the scene for a couple of years now, says Seidl. "I have personally spoken to a lot of collectors who are very interested [in funds] but the exit scenario is the real problem."
For the moment, therefore, Seidl recommends the more traditional, direct investing route. However if, like Evans, you purchase a car as an investment, make sure you don't actually take it out for a quick spin.
"You can be sure [Evans] will not use it," says Seidl. "The only thing he will do is keep it maintained by keeping the engine, gearbox and rear axel parts moving to prevent it from getting standing problems."
Another strategy worth looking into is provided by an American investor who purchased the entire production line of a limited edition classic. "He waited a couple of years then put each car on the market one by one," says Seidl, who confirms the investor earned "a lot" of money.
For any budding car investor, however, Seidl has a final, sobering message. "Even if you keep a car for ten years and close the garage door you have to expect it to drop in price," he says. When it comes to car investing, knowledge is everything.
For centuries, one instrument maker has been synonymous with quality, beauty and value, and his work has been prized more than any other craftsman in the world.
Antonio Stradivari set up shop in Cremona, Italy, in the late 17th century and almost immediately his work was coveted by the elite of Europe. The 1729 instrument known as "The Hammer" was sold in 2006 for $3.5 million, which is currently the most expensive public sale of a musical instrument. His "Lady Tennant" violin, first owned by Nicolo Paganini contemporary and renowned violinist Charles Philippe Lafont, sold in 2003 for $2.03 million. However, private sales are believed to fetch much higher prices, with some Strads believed to be valued at around $6 million each.
Whereas art can be appreciated in the viewing, instruments can also be appreciated in the playing. That is the spirit behind Chicago-based organisation the Stradivari Society, which, through patrons and private collectors, loans quality instruments to performers.
Geoffrey Fushi, chairman of the Stradivari Society and co-founder of acclaimed string dealers Bein & Fushi, says many families and individuals take great satisfaction in accomplishing dual investment and philanthropic goals by purchasing a quality instrument and loaning it to a talented musician. "These precious and irreplaceable instruments will continue to be heard in the hands of great artists only as a result of concerned individual sponsorship," he says.
Fushi says when valuing violins, there are really only three sets of criteria to look for: "Period, physical condition, and history/provenance. Generally speaking, Stradivari violins made after 1700 are the most valuable, reaching a peak around 1715. Pre-1700 Stradivari instruments tend to lessen in value the earlier they were made."
Other instruments may be valued more for the importance of their previous owners rather than just the quality of the instrument itself. In 2000, pop star George Michael purchased John Lennon's Steinway Model "Z" piano at auction for $2.08 million. The former Beatle is said to have composed the song "Imagine" on this upright piano, which still bears Lennon's old cigarette burns.
The most expensive drums in the world are believed to be a portion of The Who drummer Keith Moon's drum kit, which Christie's auctioned off in 2004 for $252,487. Moon was famous for "trashing" his equipment both on and off stage yet these pieces managed to escape with only minimum cosmetic damage. In 1995 a "Martin Committee" trumpet once owned by jazz virtuoso Dizzy Gillespie fetched $55,000 at auction. The iconic model, played by Gillespie throughout his career, dominated jazz from the 1940s onwards and was also used by Miles Davis and Chet Baker.
Guitar aficionados form an entire investment class of their own, fuelled by their love of the iconic shape and sound of the instrument and its place in music culture. In 2004, Eric Clapton's prized Stratocaster "Blackie" became the most expensive guitar sold at auction. His entire collection, sold to benefit his addiction treatment centre in Antigua, went for $7.44 million. Fourth-generation family business owner Fred Gretsch says he owes much of his company's renewed success to guitar collectors and players enthusiastic about his family's brand. Now specialists in guitars and drums, the Gretsch Company was founded in 1883 by Fred's great-grandfather as a small musical instrument shop in Brooklyn, New York and is now based in Savannah, Georgia.
Wine extraordinaire David Sokolin, son of renowned New York dealer Bill Sokolin, tells the story of how his father sold 20 cases of 1961 Mouton-Rothschild and 1961 Chateau Petrus to an investment banker in 1962.
The banker was incensed when he discovered the Petrus was $120 a case when the Mouton-Rothschild was only $100. In disgust, the banker sent back all but one of the cases of Petrus. Thirty years later, the banker cursed his earlier decision when he sold his single Petrus case for $120,000.
If you're looking strictly for high returns, then it is hard to go past Bordeaux. The region has the longest track record of investment performance and its vintages consistently come out on top at the various tasting events around the world. Wines from certain vineyards seem to top the charts year on year, and châteaux Haut-Brion, Lafite-Rothschild, Margaux, Petrus and Mouton-Rothschild make up a large proportion of the red Bordeaux traded on the open market.
Guy Lassemblage, a family wine dealer in London, says Burgundies have also strong performers over the past few years. "Compared to Bordeaux, Burgundy's production is miniscule," says Lassemblage. "But recent vintages have seen a tremendous response."
Lassemblage says in particular, some 2005 vintage Domaine de la Romanee-Conti have already seen sharp gains from €8,200 a case to €25,000 a case.
The value of the most traded wines are tracked on the Liv-ex 100 – London's benchmark fine wine index. Over the past three years, the index has increased 161%, topping 258.41 points in May this year. By consistently beating most global equities markets over the past few years, the index proves wine's legitimacy as a true asset class.
Wine funds can also be a unique way to take advantage of the market but investors need to understand exactly what they are buying. Some "wine" funds actually invest in wine companies or wineries rather than buying actual bottles and vintages. This is an equally legitimate way to make money off your passion for wine and can be greatly rewarding in the long term.
Andrew della Casa, a director of the Wine Investment Fund in London, says he looks strictly for wines that will rise in value in a steep fashion. His fund buys specific vintages and raises capital in yearly tranches of a minimum of €12,500 per investor.
"We are totally unemotional about what we buy," says della Casa. "Our objective is to buy at a 'flash point' before a major price rise and the hold the vintage."
And his goal of doubling his investors returns every five years seems to be achievable. He says that the fund consistently sees growth well over the target of 1.4% per month.
But Hugo Rose, a director at UK fine wine dealer Lay & Wheeler, says for many wine collectors, it is less about investment and more about a true passion for wine.
One of the services that dealers are able to offer is access to otherwise unobtainable vintages and chateaux.
"There are some very high profile wines that have very low, fixed production. No matter how much money you have, you won't get a sniff of them without the right contacts," says Rose.
He explains that the ever popular Petrus only produces about 4,000 cases a year but could probably sell 100,000.
Collectors who build collections for themselves are aware of the investment overlap, he says, but this is rarely their driving influence: "Currently the best wines will increase in value quite sharply and sustain that value, but for the true collector, the value is in the beholding … and the drinking."