Collectables face crunch
Florian Leonhard has a passion forviolins. But not a commonplace passion and not just any violins.
He reckons rare instruments from the 17th and 18th centuries, selling at $1.5m a time, are the fi nest investment you can fi nd, boasting 11% a year growth since 1987: “Even insuring them is cheap. Any musician who borrows one never dares to lose it,” he says.
Buoyed by his own enthusiasm, Leonhard, treasurer to the British Violin Making Association, raised £12.5m (€15.8m) for his Fine Violins Fund early this year. But having reached its fi rst closing date, Leonhard has got no closer to his £40m target.
Elsewhere, First State Investments has found it tougher than expected to market a fund that owns a portfolio of song copyrights, such as John Denver’s Take Me Home, Country Roads, to a nervous wealth community.
First State will be lucky to raise half its targeted $300m (€205m), with private banks reluctant to risk client cash on such an esoteric area.
William Beck, founder of Wine Asset Management who began his career with UK broker Cazenove, confirms prices of wine have stabilised since July last year, having risen rapidly in recent years. “Wine prices can be volatile and they have been impacted by the slowdown,” he says.
Several commentators agree the credit crunch is starting to knock sentiment in collectables markets. According to Charles Dupplin of insurer Hiscox, prices are collapsing at the lower end of the art market, partly as a result of financiers losing out on bonuses. According to ArtTactic, which provides research and advice for collectors, a net 90% bullish stance among buyers 15 months ago has fallen to 50%.
Despite this, Damien Hirst raised £111m from an auction at Sotheby’s in London during the week when financial markets were digesting the collapse of Lehman Brothers, prompting him to suggest there is more money to be made from pictures of butterflies than from banking.
Art promoters argue the financial crisis could mean wealthy investors are happier to own real assets than paper investments affected by short-selling and mark to market calculations. The world has never been so full of rich, successful, entrepreneurs, who can be every bit as obsessive in collecting beautiful objects as in building businesses.
Lord Michael Ashcroft, donor to the UK Conservative party, snaps up every Victoria Cross medal that goes up for sale. Bill Gross, investment head of bond manager Pimco, has assembled the world’s biggest stamp collection. Last month he announced he was auctioning some of his UK collection for charity, expecting to raise $100m.
There is still sufficient momentum behind stamp prices to encourage adviser Stanley Gibbons to offer investors guaranteed returns on its funds.
Elsewhere, entrepreneurs in emerging economies are developing a taste for collectables for the first time. Philip Hoff man, chief executive of The Fine Art Fund, a London-based specialist asset manager, says: “Markets like Russia, the Middle East, Asia and South Africa, which have never bought art as an alternative investment, are jostling for a piece of national art.”
Ian Goldbart, managing director of coin dealer AH Baldwin, reckons coins have potential upside, partly because the sector did not become overheated during the credit boom.
A double-eagle $20 coin minted in 1933 recently changed hands for $7.5m. The Avarae Global Coins fund, which Goldbart advises, bought a gold coin minted during the reign of Edward III for £470,000 two years ago.
The non-US price record was smashed this year by a Polish coin which fetched $1.38m. A 1755 Russian 20 rouble coin will be auctioned in November and could fetch $2m or more, said Goldbart.
Promoters of investment vehicles take their cue from recent price moves, rather than economic prospects, to argue the only way is up. The opposite view is that the price of collectables is likely to rise late in an economic cycle, reflecting the way cash was generated in the upswing rather than the fact that the money making machinery is grinding to a halt.
And when prices crack in illiquid markets they will do so with a vengeance, in the same way joboba, ostrich and classic car funds crashed out favour in previous cycles.
The frustration felt by Leonhard is more likely to be the shape of things to come than feverish bids for Hirst’s art by fans with a vested interest in keeping prices high. It so happens that the share price of auction house Sotheby’s is near its low for the year, at $23.3, or less than half its recent high of $61.
Stock market investors at least seem to think prices paid for passion investments have reached their peak.
del.icio.us
Digg
Newsvine
reddit
StumbleUpon