Professor of passion
The brain surgeon and the €100bn passion portfolio
When the Michelin Guide, Europe’s restaurant bible, is published each year, Professor Patrick Georges takes a closer interest than most. This is not down to a love of gastronomy – the 55 year-old, Brussels-based brain surgeon favours Michelin’s Bib Gourmand restaurants, classed as offering “good food at moderate prices” – but because the guide offers a potentially tasty investment opportunity for clients of his company, Passion Investments. “We email all the one-star restaurants and ask if they are interested in raising the estimated €500,000 it will take to get a second star,” explains Georges. “About a third say yes.”
He then sets out to then find a wealthy individual with a passion for food who will put up the cash. In return, they get not only a share in the business but added perks, such as guaranteed bookings, special meals and cooking lessons. “Lots of rich people want to invest in gastronomy and they want to have lessons; they want to learn to be a great cook,” says Georges. “This offers them a way to realize their dreams.” For 10 years, Georges has operated Passion Investments as what he calls a “virtual company” with 20 other full-time academics from top European universities and business schools. In between their teaching and research commitments they find unusual investments for their wealthy clientele. “We are a network of experts rather than a hard commercial organization,” says Georges who, in addition to operating 100 times a year, lectures on management on the MBA course at the Solvay Business School. He estimates his network has raised €100m for restaurants, artists, films, museums, universities and business schools and the sums are growing rapidly. “Two years ago I received a call from a very rich European individual who had decided in his succession planning that he wanted to have 20% of his assets in passion investments,” says Georges. “He wanted to leave his children not just money but rights, participations and responsibilities in other areas of life.” And, he adds, unlike a charitable donation, a passion investment should offer a tangible return: “What’s original is linking the passion and investment side, so you end up with something closer to a financial instrument.”
Growing demand The idea of regarding luxury goods as bona fide investments has gained traction as wealth creation has boomed. “Five years ago, the idea of passion investments barely existed,” says Pierre Mirabaud, senior partner at Geneva-based private bank Mirabaud & Cie and chairman of the Swiss Bankers Association. “But demand has grown, especially from family offices.” Collectibles in particular have been promoted as a new form of alternative asset and funds to invest in everything from art to wine, musical instruments, coins and stamps have mushroomed (see the article on the following page). The funds are usually pitched as capturing the intrinsic value of rare, exquisitely-made items, but the underlying investment logic is often based on notions of scarcity and human behaviour: that the price of anything of value and in short supply will rise as people get richer and seek to gather socially accepted symbols of wealth. Arguably, for anyone buying an art or wine fund, the passion element of the investment is incidental. Rather, they are speculating that prices of the underlying assets will continue to rise. Collecting is more akin to Georges’ idea of passion investing, as the avid collector is motivated primarily by the idea of owning rare items rather than the belief the price of those items will continue to rise (although this is often the collector’s hope). Yet if something is truly a passion, to be pursued regardless of cost or consequence, can it really be called an investment too? “It depends,” says Mirabaud. “I know a lot of art collectors who have a passion for art and buy works that reveal themselves to be good investments 10 years later.” Rather than such retrospective investment potential, Georges’ aim is to offer some form of guaranteed return up front. “We make it very clear to clients that this is high risk,” he says. “Buying a stake in a restaurant or financing a film is a huge risk. But at least we can guarantee the client a seat at the premiere or a cooking lesson at home. That is contractual and you might regard it as a near-financial return.”
Academic funding The idea for Passion Investments arose indirectly from a previous business Georges launched with students from his MBA class. The Management Cockpit Company was a software system that was bought by several Swiss private banks in the 1990s (Georges sold the company in two stages, exiting three years ago). “I was talking to advisers who were saying they expected their clients to have 10% to 15% of their assets in passion investments in the near future,” says Georges. He saw an opportunity to match wealthy investors with universities that were struggling to find backing for new research projects. “The business started as an informal network of professors who wanted to find funds for their own research because the schools were telling them they had no more money.” Backing an academic research post remains the best-selling opportunity offered by Passion Investments. Sponsoring a chair at a mid-sized university costs about €500,000 while the top universities charge €2m. The investor might put their name to the post and also have a right to equity in any commercial spin-offs from the research programme. Environmental studies and microfinance are particularly popular areas for investment, says Georges. Daniel Traca, vice president at the Solvay Business School and director of the MBA programme on which Georges teaches, believes Passion Investments offers an innovative way to help bridge funding shortfalls. “One of the challenges of business education in Europe is that with state sponsorship on the ropes there is a real need for funds,” he says. “Unlike US schools, European universities have generally not developed expertise in alumni fundraising.” Traca recently put together three proposals for Passion Investments: for a research chair on microfinance; a project looking at how environmental challenges effect business; and for a series of scholarships for students who wouldn’t otherwise be able to afford an MBA. However, Georges says not all institutions are as open to financing their operations in this way. “Some only want philanthropy. But we are not a charity business.”
Fair profits He describes Passion Investments as a “fair profit” company. It takes about 9% of the value of each investment, with fees split between the investor and beneficiary, but limits profits to 3%. “We invest the remainder of our fee in projects that we think are worthwhile but for which we can’t find funding elsewhere. Perhaps in a young artist or cook who other investors feel is too risky.” For the past two years, Passion Investments has not sold directly to clients but only through private banking partners. Fortis Private Banking struck an exclusive deal with Passion Investments in Belgium in April. Xavier Declève, senior executive director at the bank in Brussels, got chatting to Georges when the two sat next to each other on a flight. “He explained the concept to me and I found it fascinating but also in line with developments at Fortis Private Banking,” says Declève, whose personal passions include art, photography and classic cars. One of the bank’s clients has signed an agreement to fund academic research into new energy technology and four more are lined-up for projects in the arts and academia. Declève sees passion investments as part of the general trend for the wealthy to have more diverse investment portfolios and also to seek social as well as monetary returns. For any clients Fortis secures for Passion Investments, advisers receive a kick-back of between 1% and 3% of the value of the investment. This hints at the challenge facing Georges’ and his fair profit approach. As Passion Investments becomes bigger and more commercial the nature of the business will have to change.
More commercial Since it started using intermediaries, the number of deals the company executes has doubled to 20 a year. Georges’ believes the potential is much greater. “By the end of 2009 we should manage at least 100 deals a year,” he says. To achieve that goal will require a staff of 20, probably in Switzerland, and some hefty investment from outside. “If we have financial investors, we may be pushed to be more commercial and that will mean changing our philosophy and being a full profit company. That will be a joint decision with my colleagues,” says Georges. His aim is to sell the business in three to five years. Traca at the Solvay Business School has no problem with the idea of Passion Investments becoming more commercial. “Passion Investments provides a service and should be compensated for it. Many schools don’t have the know-how or skills to do this,” he says. However, he adds that there are limits to the contractual returns that academic institutions can offer: “One of the challenges is that universities are very sensitive about academic independence. The donor has to respect that he or she cannot disrupt the independent activities of the university.” Solvay appears to offer little beyond the normal return a philanthropist might expect from a big donation to a university: the naming of a research post and access to its work. Proposals from the HEC Paris business school appear to go further, promising “privileged access to faculty and a voice in the orientation of research subjects” for investing in a research centre in China and “the development of privileged business relationships” for an €850,000 investment to launch a corporate performance institute. Privilege is, perhaps, what Passion Investments is all about. In a world clogged with luxury goods, wealthy individuals can struggle to attain the sense of privilege they feel entitled to; the idea that money should buy them more than just expensive “stuff”. Georges is also reviving a long-standing concept among Europe’s wealthy: patronage. The willingness of his clients to back medical research is a perfect example. “Wealthy people are aging and they want to be intimate with the top doctors and the latest research developments,” he says. “The investor has the confidence they can pick up the phone at any time and talk to the best doctors. I don’t know if that’s ethical, but it’s real life and has been for hundreds of years.”
THIS ARTICLE FIRST APPEARED IN THE OCTOBER ISSUE OF WEALTH BULLETIN'S MONTHLY PRINT SUPPLEMENT WITH THE WALL STREET JOURNAL EUROPE
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