Luxury Assets Key for Portfolio Management

Art Gallery | Luxury Assets

In a turbulent economic world, the portfolios of high net-worth individuals require a more careful than ever balancing act. Physical assets – luxury assets – are one way to diversify wealth when you lack confidence in a financial system. In recent years the most dominant of these luxury assets has undoubtedly been art.

Through persistent worries about a ‘bubble’ the art market has remained bullish – works of great art by timeless artists have become a physical currency all of their own. What is particular about this trend is the preference for owning art over investing in art. For example, assets under management in art funds – where investors pool their money to be managed by a professional art investor – have declined nearly 40 percent to an estimated $1.3 billion since 2012.

Art, of course, has an intangible value that transcends Dollars, Sterling and Euros – it is a status symbol. Becoming an art collector is not just a way of hedging of your wealth against currency fluctuations – it signals your entry to a global elite. Earlier in 2015 The Qatari Royal Family was rumored to be the buyer behind the $300 million purchase of Gauguin’s 1892 work “Nafea Faa Ipoipo” (When Will You Marry?). That followed the acquisition of works by other prestigious names such as Rothko, Hirst and Cézanne by The Qatar Museums, a state-run body that has spent billions on bringing important cultural works to Qatar. Much like they have used sport, the Qataris are using art as cultural currency.

Collecting art has moved from a passion pursued by certain wealthy people to an activity that is as much a signifier of wealth as owning real estate. Wealthy people have always owned pieces of art of course, but this is not simply ‘consuming’ art, but collecting, trading and even exhibiting. In terms of the art industry as a whole this has had benefits – more investment means a greater need for expertise, for auction houses to host ‘mega-sales’ worth billions and improves liquidity in the market.

Art has not been the only asset to bolster the portfolios of serious investors – over the last decade luxury assets have grown in value by 200% – according to the Knight Frank Wealth Report. Luxury Watches have seen 60% growth, Classic Cars have seen 487% growth, all against the backdrop of an uncertain global economy where physical assets have become more important. It also helps that these other luxury assets have a similar appeal in terms of status – owning a classic Ferrari is certainly more fun than investing in a fund.

Luxury Asset Growth Over 10 Years

Ultimately what this all means is that relationship managers have to consider more than ever the importance of luxury assets to portfolio management. 62% of art collectors in a Deloitte Art Finance Report last year thought wealth managers should offer art and collectible related services. However unlike buying shares, taking care of luxury assets comes with its own expenses – storage of wine, cars and art is not cheap and neither is maintaining such assets. Becoming knowledgeable about luxury assets, about their value, storage, sale and long term prospects will only become more essential as this new physical currency goes from strength to strength.

About the Author:

Joe wrote about luxury asset trends for Borro Private Finance.