Addressing alternative assets: From wine and whisky to supercars and speedy horses
Alternative investments have long captured the imagination of the ultra wealthy. From the allure of rare whisky and fine wine to the thrill of supercars and the prestige of prime London property, these assets offer opportunities that extend far beyond conventional markets. As global uncertainty continues to shape financial behaviour, many UHNW individuals are exploring new ways to diversify, protect capital and indulge personal passions.
Citywealth takes a close look at the most compelling sectors within the alternative investment landscape. Drawing on insight from leading analysts, industry specialists and trustees, we examine which markets are proving resilient, which are slowing, and where the shrewdest opportunities may lie. From wine and whisky to supercars and speedy horses, there are plenty of investment avenues investment for UHNW individuals that aren’t your usual stocks and shares. Citywealth takes a dive into a variety of alternative investment markets to get the low-down on where the ultra-wealthy may want to pad their portfolios.
In an uncertain world, the diversifying ones assets can be a very appealing strategy. Outside of the conventional investment options of equity and bonds, there is a plethora of options for the UHNW individual who is looking for something a bit different. Before diving into alternative assets, just like their conventional counterparts, we need to ask the key questions of where, when and why.
The Knight Frank Luxury Investment Index (KFLII) provides a comprehensive overview of the luxury asset market, noting each year which investment options are on the rise or best avoided. The 2023 Index, which tracks a weighted basket of 10 luxury collectibles, suggests that luxury asset investment is slowing. Rising by only 7% in the 12 months to the end of June 2023, the KFLII its weakest annual performance since Q2 2021, suggesting that that tangible assets are not immune to market uncertainty.
Out of the different assets tracked by the Index, art continues to put in a strong performance, topping the KFLII with a 12-month growth of 30%. Citywealth recently spoke to experts working in the art industry with UHNW clients; the full feature can be found here.
Completing the top 3 of the KFLII are watches and jewellery, showing that UHNWs are still investing on personal luxury items. Coins come up in fourth, with a price rise of 8%. Usually in the double-digits in terms of percentage rise, wine and classic cars are on a clear slowdown at 5% each. Coloured diamonds come in eight place in the Index. Handbags (1%), furniture (0%) and rare whisky (-4%) bring up the rear to complete this year’s rankings. Rare bottles of whisky, which have historically been the strongest 10-year performer in the KFLII, are the only asset class to see a negative annual performance.
An industry consultant, said on whisky: “Bottles of rare whisky have had a far more sedate time from a performance perspective over the past three years. Higher value (over £5,000) bottles have re-traced recently due to a myriad of geo-political, social and economic reasons. Certain brands have still performed well, while the market leader (from a sheer volume of market perspective), Macallan, has seen particularly punishing losses with its index re-tracing almost 12% over the past twelve months.”
Andrew Shirley, editor of the Knight Frank Luxury Investment Index said: “Economic uncertainty and higher interest rates will cast a long shadow on luxury collectibles. Novice collectors should focus on what brings them joy, perhaps that’s more important now that value appreciation is far from guaranteed in these asset classes.” To view the full Index, click here.
Supercar slowdown?
The UK automotive industry has seen also seen substantial slowing of investments into supercars, with the number of licensed cars only increasing by 621 in the past year. This is a drop from the consistent increase in purchases the industry has seen over the last five years. Research from UHY Hacker Young shows that high interest rates are largely responsible for this slowdown, and sanctions on Russian UHNWs is also likely playing a part.
David Kendrick, Managing Director at Cooper Parry Wealth, said: “Interest rates are impacting every corner of the economy. The slowdown in supercar sales shows that not even the ultra-wealthy are immune. We tend to think that sales of luxury goods like supercars as insulated from world events but that isn’t necessarily the case. A lot of Russian buyers left the UK market in 2022, hitting several categories of luxury purchases – supercars were one of them. Fortunately for the luxury car sector, HNWs from the Gulf and further afield remain reliable ‘supercar’ customers. If oil prices stay high, supercar sales should remain solid.”
The pull of property
One of the most traditional forms of alternative investment is property, with the majority of UHNW investors active in this area. Liam Monaghan, Managing Director at LCP Private, provided an oversight of the market as it currently stands.
“Prime Central London (PCL) is predominantly an international market and international markets are affected by what’s happening on the global platform. Whilst the domestic market (UK buyers) only looks at its own doorstep, the Prime and Super Prime market is in high demand as UHNWs look for real estate investment opportunities in the most prime London addresses. This market is unaffected by the current interest rate hikes taking place in the UK. The current disconnect between what buyers are wanting to pay and what sellers are willing to accept continues to impact transaction volumes and ultimately price growth. With 80% of PCL property held mortgage free and the remainder with a level of finance, there is a limited pool of options available for buyers to ‘grab’ a bargain. Unless you or your representative knows where to find them.”
“Our view is that given PCL apartment market values have remained static, tracking along the bottom, that they should not drop any further. Therefore, now does appear to be an opportune moment for investors to enter the market whilst prices are currently suppressed, and transactions are low. PCL values stand 8.1% below the 2015 peak, with flats 8.8% down and houses 3.3%. When the market in PCL grows, it can do so at a rapid rate.”
Monaghan notes that the most active buyers in the market are international investors; those from Asia, the Middle East, US and Europe who want to capitalise on the current condition of the UK property market and purchase a “well-priced opportunity”.
“Landlords continue to be in a strong position within the PCL rental market with rents running on average 21% higher than pre-pandemic. Nevertheless, even with these buoyant conditions, a well-planned pricing strategy is vital in the current market. Well-presented and priced rental properties continue to be snapped up by high-net-worth tenants. Landlords are also benefitting from the average length of tenancy reaching around 2 years, as tenants remain in their high-quality rental property than risk finding an alternative with a substantial rent increase. For many opportunistic investors, using little or no finance, these conditions make a rental investment look very attractive especially when some motivated sellers in PCL are willing to sell at a discount and with yields reaching up to 5%.”
Liam Bailey, Global Head of Research at Knight Frank, said: “Everything has changed due to the rate environment, if you could achieve a 4% yield on a residential property in 2021 you can no achieve the same with cash in the bank – so investors are having to work a lot harder to justify their investments. Loose money policies over the past two decades inflated asset values everywhere – that is a process that is unravelling.”
“In most sectors there is a sharp bifurcation between ‘best in class’ and ‘the rest’ – so in the office market for example, where wealthy investors have been increasing their activity sharply over recent years, well located, green, new or recently refurbished buildings are achieving record rents in the West End and the City – while secondary building in off-pitch locations struggle to attract occupiers. However even here wealthy investors are spying opportunities for change of use to living sector or life science uses. As an example of best in class trading well – £10m+ homes in London saw a revival in demand with 225 sales in the year to June this year vs 157 in the last full pre-pandemic year 2019.”
Wine over whisky?
Whisky might be on the down and out, but wine is staying relatively strong as an investment option. Matthew O’Connell, CEO of Bordeaux Index, said: “The fine wine market has a long term track record of c.10% CAGR across the last 30 years or so and has been attractive for investors in recent years as the focus on ‘hard assets’ like wine – with low correlation to traditional assets, good inflation protection and proven capital preservation – has increased. The market saw strong performance across 2021-2022 (+35% in that 24m period) but has been a little softer with more muted activity in 2023. We expect an uptick in activity and a resumption of price growth during 2024, particularly from Q2 onwards – in particular Champagne is a segment where prices have come off more than 10% this year despite strong ongoing fundamentals and could have interesting potential next year.”
Thorough research on thoroughbreds
With 2023 seeing a “pretty robust” bloodstock market, investment in horses could be an intriguing avenue of investment. Tattersalls is the main auctioneer of race horses in the UK and Ireland and Jimmy George, formerly Tattersalls’ Marketing Director, provided a comprehensive summary of the thoroughbred market as it stands, and what to know before taking the plunge.
“Broadly speaking the global bloodstock market is currently pretty robust although not quite matching 2022 which, particularly at Tattersalls, was an extraordinary year with record levels of trade in almost every sector of the market. It should, however, be noted that ‘investment’ is not necessarily the correct term to use in reference to people’s spending on thoroughbreds. Horseracing is a sport and a leisure pursuit for the majority of racehorse owners. Most racehorse owners do not expect to make a profit out of owning racehorses, but one of the great things about the sport is that every year there are plenty of ‘feel good’ stories of horses bought for relatively small sums which go on to earn large amounts of prize money and be resold for vastly more than their original purchase prices. A wonderful example in 2023 is a five year old racemare called VIA SISTINA who was bought as a yearling at Tattersalls in 2019 for 5,000 guineas (£5,250). She has since won five high class races and nearly £700,000 in prize money and is set to be sold at the Tattersalls December Mares Sale on Tuesday 5th December where she will be one of the highlights of the sale with an expected seven figure price tag.”
“In general terms the bloodstock market tends to reflect the global economic climate although in the past few years, and particularly last year, it could be said that the bloodstock market has proved to be more resilient than might have been expected after the rigours of Covid and subsequent widespread economic uncertainty. Although racehorse ownership would not be widely regarded as an investment opportunity, it can be extraordinarily rewarding. The thoroughbred is a commodity which can increase in value quicker than almost any other. Conversely it can devalue equally quickly. Nevertheless there are sectors of the bloodstock industry which are very much driven by investment strategy; most notably buying foals to resell as yearlings the following year or buying yearlings to resell the following year as unraced two year olds.”
“The December Foal Sale which Tattersalls takes place 28th November – 2nd December is the largest foal sale in Europe and the majority of the foals purchased there will be reoffered the following autumn as yearlings with the aim of reselling for profit. Just as with any investments there are risks involved, but every year there are plenty of examples of spectacular returns with one of the most notable this year being a yearling colt by a sire called CRACKSMAN who was bought last November for 40,000 guineas (£42,000) and resold at Tattersalls in October for 410,000 guineas (£430,500). Similarly we sold an unraced two year old by the stallion HAVANA GREY at the Tattersalls Craven Breeze Up Sale in April for 625,000 guineas (£656,250). He had been bought only five months earlier as a yearling at Tattersalls for 42,000 guineas. Interestingly he is now called VANDEEK and is one of the best two year olds in Europe, worth considerably more than the 625,000 guineas he cost in April. As mentioned earlier, the bloodstock market remains resilient, but it is not immune from wider economic influences.”
Trustees’ takes
To round our investigation out, Citywealth spoke to a couple of trustees to garner their views on what they are seeing from the professional wealth management perspective.
Walter Stresemann, Managing Director at Magnolia Private Office in Switzerland, said: “As trustees, we have seen no notable shift in vestment preferences by our clients. Almost all of our administered assets continue to be managed through discretionary investment mandates delivered to banks and/or independent asset managers. The only shift we have seen in the past months is a shift from equities into certain bonds and cash (USD). The overall hedge fund exposure has also increased somewhat. However, on the whole our administered liquid assets remain rather classic in their overall composition.”
James Long, Director, Trust Services at Rawlinson & Hunter, Cayman Islands, said: “We haven’t necessarily seen a slow down in the investment into alternative assets, but rather a shift in the approach and the investments being made. Economic uncertainty affects all generations equally, and although there might be different risk appetites between generations, I can’t say that we have seen a noticeable difference in the recent asset choices being made between generations. The general trend has been to de-risk and diversify. Alternative assets continue to provide an attractive avenue to achieve this purpose, though clients have become increasingly selective and mindful of custody/ownership.”
“Over the last few years, diversification through private equity has been incredibly popular. The current economic uncertainty, and notably the high interest rate environment, has made private equity less attractive. Clients continue to invest in private equity though they are being much more selective in relation to the industry and managers. Private credit, offering yield generating alternatives to traditional fixed income, has seen a noticeable surge of attention. We have also seen an increase in the appetite to own and hold physical gold, despite the extra cost of custody (as compared to paper gold). Although the art market has cooled, our clients continue to invest in art. Their approach has become somewhat less speculative in nature, though economic uncertainties have not tempered their appetite for investments of passion. Investment in high end assets (such as yachts, vessels, private jets and bloodstock) are undoubtedly being reconsidered and temporarily put on hold until there is greater certainty with regards to the economy (and the wider geopolitical sphere). Though, this said, not all our clients have been deterred!”
A big thank you to all who contributed to this article.
Key Takeaways
- Alternative assets attract UHNW individuals looking to diversify and indulge in personal passions amid economic uncertainty.
- The Knight Frank Luxury Investment Index shows slowing performance in luxury asset investments, particularly in whisky and classic cars.
- Art remains strong, with a 30% growth in the past year, while supercar investment has decreased due to high interest rates.
- Property investment persists, especially in Prime Central London, with international buyers seeking opportunities despite market fluctuations.
- Whisky struggles, while wine continues to show potential for growth; thoroughbred investments are also seen as rewarding despite market risks.
Estimated reading time: 14 minutes
A. Alternative investments are assets outside traditional listed equities and bonds. For UHNW investors, this can include fine wine, rare whisky, art, classic cars, supercars, prime property, thoroughbred bloodstock, private equity, private credit and physical gold.
A. Growth has cooled, with the number of licensed supercars in the UK increasing only marginally compared with previous years of strong expansion. Higher interest rates and the exit of some Russian buyers have weighed on demand, although high net worth buyers from the Gulf and other regions remain important.
A. Prime central London remains a predominantly international market, with strong demand for the best addresses. Values are still below their 2015 peak and have been broadly static, which some see as an entry point. Most stock is held with little or no debt, so genuine bargains are scarce and tend to require specialist knowledge to source.
A. Trustees report no wholesale shift away from traditional portfolios, which are still often run through discretionary mandates. There has been some rotation from equities into selected bonds, cash and hedge funds, alongside continued interest in alternatives such as private equity, private credit, physical gold and art, with a greater focus on risk, diversification and custody.
A. The general trend is towards de risking and selective diversification rather than indiscriminate buying. Clients are more cautious about high operating cost assets such as yachts, jets and bloodstock, but the appetite for investments of passion remains. In a higher rate environment, investors must work harder to justify illiquid or complex exposures and are advised to focus on assets that deliver both personal value and robust investment rationale.
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