As a broker focussed on the high net worth space, it’s not unusual for clients to approach us looking to finance an object they want rather than specifically need. One could argue that no one needs a classic car – but the reality is that buying a classic set of wheels can not only bring hours of joy and realise a life-long ambition; it may also be a smart investment.
There’s a specific term for this end of the market: Passion Investment. Passion assets are tangible, high value items. The 2017 Coutts Passion Index Report set out four segments of the market:[i]
- Collectibles including fine wine, stamps, coins, classic cars, rugs, carpets and rare musical instruments.
- Precious items such as jewellery and watches.
- Fine art, including impressionist, modern, old masters, post-war contemporary and traditional Chinese works of art.
- Trophy property, such as overseas homes.
Why invest in passion assets?
Large Mortgage Loans Founder and CEO Paul Welch says, “It might seem strange that a billionaire wants to come to a business like ours to raise money to buy an asset, when they could clearly buy it outright. But if you can raise credit fixed at around 2% for five years, make a 10%-20% return and hold on to your money in the process, there’s little risk and plenty of opportunity”.
In the face of struggling prime real estate values, passion investing may be a very smart move. According to the latest Knight Frank Luxury Investment Index, rare whisky tops the investment league, with values increasing 40% in the 12 months to the end of Q4 2018. Factored over 10 years, that’s a staggering 582% increase in asset value. In fact, the most expensive bottle of whisky in the world – a hand painted 1926 bottle of The Macallan – fetched $1.5million at auction in 2018.
Second in the investment index are rare coins, with an increase in value of 12% over the course of a year and 193% over ten years. Wine and art – both considered to be traditional passion investments, have seen a 9% increase in value; watches (5%), cars (2%) and furniture (1%) have all seen a positive increase in value too.
Experience often matters more than money
Welch says, “It’s nothing new for people to want the largest yacht in the harbour, the rarest cars in their garage, or the finest art on their walls. Increasingly, there’s a move towards the experience, and I think that will continue as we see more millennials – who are renowned for being focussed on experience – coming into the market.”
Welch cites marine craft and yachts as a great example. “Instead of just wanting the biggest yachts, investors now want them to be able to go to places they previously couldn’t – which might require the hull being reinforced to allow you to go to Antarctica, for example. One of our clients has had a boat built to enable his family to go to see the Titanic.”
Considering in investing in passion assets?
When investing in objects of desire it’s worth remembering that not all will provide an income. Items such as jets and yachts can service finance through charter or lease agreements, but with investments such as wine, coins, furniture and jewellery, the potential return on investment comes from capital growth, which can take years to materialise. There is also every possibility that the value of your possessions may decrease.
If you’re looking for your passion to provide more than just joy, it’s vital to speak to the right team of experts, who can help guide your investment strategy.
Lombard Lending can unlock the value of passion assets
There are tools and forms of borrowing which can realise the value of passion assets, without needing to sell them. This particular type of lending is called Lombard Lending[iii] – so called after the Lombardy region in Italy which popularised this form of financing.
Lombard Lending allows assets to be placed on one side of the balance sheet and, by handing over custody of those assets to a specialist private bank, lending can be leveraged against those assets. We often see it with stocks and shares, but it also applies to art collections, wine cellars and assets such as jets, yachts and cars.
Call on our team’s expertise to help guide your strategy
If you are considering investing in passion assets or would like to find out more about how Lombard Lending could work for you, don’t hesitate to get in touch with our expert team of advisers via e mail, phone 0207 519 4900 or through our website.
The Financial Conduct Authority does not regulate some aspects Asset Lending or Lombard Lending. Your home or property may be repossessed if you do not keep up repayments on your mortgage.
This information does not constitute financial, legal or accounting advice. Investors should seek their own independent advice before proceeding.
