The art of investing in luxury collectables

People have long had a passion for art, stamps and wine but these days, what was once a hobby - if a pricey one - can be a money-maker as well.

There has been a sharp rise in demand for such items because "a growing number of investors are discovering that life's luxuries and pleasures can also make profitable investments", according to a recent survey.

It found that the proportion of wealthy people expressing more interest in fine art investments was up 25 per cent last year from 2010.

Those interested in pouring money into wine increased by 11 per cent over the same time period, according to the poll conducted by Citi Private Bank and Knight Frank.

Mr Ang Eng Hieang, executive director at Swiss private bank Bordier & Cie (Singapore), told The Sunday Times that investing in collectables has always been an area of interest for the well-heeled.

"In recent years, concerns over excessively loose monetary policy, as well as price appreciation from strong China demand, have added to reasons for investors to elevate collectables from being just a part of their lifestyles, to a bona fide asset class on their own."

But such investments are no longer confined to the super rich.

Many Singaporeans are starting to dabble in these markets as they are proving to be a good hedge against volatile equity markets, as prices of art, wine and other luxury items are generally not correlated to economic conditions.

For example, the Mei Moses World All Art index, which tracks fine-art sales, grew by more than 10 per cent last year and has consistently outperformed equities since 2000.

Similarly, the GB250 Rarities Index, which tracks the prices of all British stamps - some command £10,000 (S$19,400) or more - has had an average annual compounded return of 13.4 per cent over the past 10 years.

Mr Jonathan Binstock, a New York-based Citi Private Bank client adviser, said in the wealth report that while an equity portfolio can lose most of its value overnight, investments of passion are more tangible; even if their value falls, they can still be enjoyed. 

"(Investors) accept that if they spend $5 million on a Picasso it may go down in value, but even if it does fall by 20 per cent, at least they know they will still have a masterpiece hanging on their walls."

However, dabbling in such non-traditional investment classes brings a separate set of risks.

Mr Ang notes: "Authenticity and liquidity of the investment are important considerations."

And before they throw caution to the wind, investors should understand that many alternative investments are not regulated by the Monetary Authority of Singapore, so there may be little recourse, except for legal action against the company, if the investment goes sour.

Investors should seek proper advice and try to run detailed background checks on the company they are dealing with before signing or handing over their money.

Some ways to find out more would be to attend events or seminars to get more information, or even travelling overseas to check things out in person.

Art

Famous works by artists have increasingly become a recognised investment strategy, one that has performed consistently well over the years.

Mr Jonathan Macey, director of operations at Art Futures Group, says investors should take a mid- to long-term investment horizon and hold the artworks for about two to seven years.

The Singapore office of Art Futures Group was set up in August this year.

 

Factors like the work's quality, its documented history and condition can influence prices. 

At times, certain artists can also be more popular, which can lead to a spike in the prices of their works.

Just last month, auction house Sotheby's sold an abstract by Russian-American Mark Rothko for US$75 million (S$91 million), when the sellers were expecting to get around US$50 million.

Nearer to home, contemporary works by Chinese painters are gaining traction, both in popularity and price.

Prices for Chinese art grew 17.7 per cent last year from 2010, and strong demand is expected over the next five to 10 years.

For example, the oil painting Side by Side by up-and-coming Chinese artist Liu Liguo cost $37,000 in September last year. A year later, its price had increased 10.8 per cent to $41,000.

Investors who may not be willing to part with their prized possessions can also rent out their artwork.

Art Futures Group, for example, has a programme that helps rent artwork to businesses and institutions. It says the annual yield can be about 6 per cent.

Wine

Not all wines are made equal, and only about 1 per cent of what is produced each year can be considered investment-grade.

The rest are "early consumption" wines and made to be consumed within three years.

About 80 per cent of the world's investment-grade wine is produced in the French provinces of Bordeaux, Burgundy and Champagne. 

Wine investments have enjoyed superior returns over the past two decades, averaging about 15 per cent a year.

Mr Rickesh Kishnani, managing director of Hong Kong-based Platinum Wines, says: "There is a price appreciation bias because of the extremely limited supply, and there are strict French regulations to restrict the production levels by the different chateaux to ensure quality."

He added that there is an increasing demand, especially from China.

 

Wine investing carries risks, including short-term volatility that may depend on market sentiment, and the fact that it is less liquid - no pun intended - than other asset classes.

Typically, it takes about six to eight weeks to sell the wine.

Those who are familiar with the wine investment scene could buy vintages directly from reputable distributors.

For the less initiated, wine brokers can help with the sometimes laborious process.

Platinum Wines can arrange to have the wine transported from Bordeaux to Hong Kong for $100 a case.

For $50 a case each year, it can also arrange to have the wine stored for customers.

 

The storage fee includes insurance.

If you decide to sell the wine through Platinum Wines, the firm charges a 5 per cent brokerage fee to make the sale on your behalf.

Wine is sometimes sold to corporate clients, especially in China, where giving fine wines as gifts is a common practice.

Stamps

Stamps, like other passion investments, have had a long history of stable appreciation - about 10 per cent a year for the past 50 years.

Their value is one of the most uncorrelated to the economy. The GB30 Index, which tracks the prices of the 30 most expensive British stamps, went up 38.6 per cent from 2007 to 2008.

Mr Marco Kaster, investment director for Hong Kong and Asia at Stanley Gibbons, a company specialising in stamps and other rare collectables, says there are five golden rules for such investments: rarity, the condition of the stamps, authenticity, liquidity and price.

He said: "You have to invest in areas where there is a healthy number of collectors."