LONDON (Reuters) - Rollercoaster markets may have cooled investor appetites for shares or property, but interest in offbeat investments is booming as a growing number of art and wine funds compete to combine passion with high returns.
Downturns typically mean a slowdown in investments that are seen as discretionary, but industry watchers say the credit crunch has left the appeal of so-called “investments of passion” — art, wine and collectibles — largely untarnished.
Instead, they say, it brought home the need for investors to take on uncorrelated assets to offset the ups and downs of the mainstream equity and credit markets.
Investing in a Picasso, a case of Chateau d’Yquem or a Bordeaux from the sought-after 1961 vintage is nothing new: wealthy enthusiasts have been filling their cellars and covering their dining-room walls for centuries.
But the specialized asset managers that have emerged in the past decade have brought sophisticated financial techniques to the pursuit, widening interest to include large institutional investors who are attracted by rising prices, and returns that can reach or exceed 20 to 40 percent a year.
In 2007, for example, the FTSE blue-chip index rose by less than 4 percent. The main index on Liv-ex, an independent trading and settlement platform for the fine wine trade, ended the year up just over 40 percent — and with excitement still bubbling around the 2005 Bordeaux vintage, now being shipped.
“More and more people are looking at wine as an asset class, discovering it is uncorrelated to bonds and equities, that there are fund managers out there to help them capture those gains,” said Andrew della Casa, a director at the Wine Investment Fund, one of the sector’s largest players with 35 million pounds ($69 million) of funds under management.
He said the credit crunch had allowed funds to demonstrate how resilient alternative assets were in a real downturn.
“On the institutional side, the credit crunch may have crystallized thoughts that have been around for years, when they’ve been tracking the wine market,” he told Reuters. “Now they have less options elsewhere they might say well, let’s give it a go.”
Although in a steep downturn, analysts say investment in art and wine will, like luxury goods, behave poorly, Della Casa said the wine market has a resilient core of demand.
“People say prices have gone up tremendously, they can only go down,” he said, referring to how demand from emerging middle classes in Russia, China and elsewhere has driven prices.
“That’s not the case — there is static demand from North America and Europe and even if we just go back to that trend, we are still going to outperform every asset class out there. That’s even if — and we don’t think we’ll get there.”
Most investors flocking to wine auctions are regulars stocking up their cellars, but a growing minority is taking a bet on key vintages. One buyer at Christie’s earlier this month snapped up a case of Chateau Petrus Vintage 1982 — one of the greatest vintages in recent decades — for 32,200 pounds, at one of the auctioneer’s most successful sales to date.
Interest in art has also remained buoyant — Christie’s also sold a Francis Bacon triptych for 26.3 million pounds ($52 million) this month: the highest price ever paid for a post-war work of art sold in Europe.
“The art market did not suffer repercussions when the Internet bubble burst and it is doing extremely well today, even after the credit crunch,” Robert Tomei, CEO of Italian fund manager Advanced Capital, who is launching his third art fund.
Tomei’s 150 million euro Advanced Capital Art fund, run with art dealer Simon de Pury of Phillips de Pury, will focus on contemporary art, photography and design and hopes to replicate the 20 percent annual returns he achieved with past funds.
But neither art nor wine — nor other investments in the broad “alternative” category which includes private equity or hedge funds — can be totally immune to a downturn.
“Investing in fine wine is no panacea,” said James Miles, a director at Liv-ex. “You have to go in with your eyes open. In a period of lengthy dislocation, wine prices tend to fall, but the fall is nothing like what the debt, equity and property markets have seen and the outlook seems strong.”
Like other alternative investments, both art and wine remain riskier and, by and large, less liquid markets — although fund managers say they are working to strip out the risk, for instance by focusing on established artists or wines.
“If you look at our portfolio, losses have never exceeded 10 percent including costs, and this is because of the intrinsic value of art. Art doesn’t burn cash, it isn’t an Internet company,” Advanced Capital’s Tomei said in an interview.
“If you buy artists that have an established career, it’s a real asset and that acts as downside protection, assuming you have not bought at a speculative price.”
The Wine Investment Fund takes a similar low-risk approach, investing only in already bottled wine — as opposed to the more traditional route of wine “en primeur”, before it has been bottled — and only in top Bordeaux, the most liquid of wine investments.
Reporting by Clara Ferreira-Marques; editing by Sara Ledwith