19 November 2020 |

Turning a passion into a part of the investment portfolio

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Credit Suisse’s inaugural study in collaboration with Deloitte Luxembourg seeks to shed light on how collectibles and financial assets in private wealth can co-exist and be complementary.

Collectibles: An integral part of wealth shows that non-financial assets have emerged as a “pillar of stability” in global wealth through the years. Collectibles can help investors protect and grow their wealth, Credit Suisse says, because of both their store of value and their cyclical attributes.

The study shows that property is the largest asset class for investments by ultra high-net worth individuals.

Source: Credit Suisse

“While real estate by far leads real assets in size and prevalence among private individuals, items of intrinsic or social value such as collectibles, which can ultimately be monetised, often play an important role as a store of value,” said Urs Rohner, chairman of the board of directors for the Credit Suisse Group.

A study of different non-financial assets by Credit Suisse indicates that they have fared rather well.

Source: Credit Suisse

“We know that non-financial wealth is an important element of stability, and (…) frankly is an important part of just how people hold their wealth,” said Nannette Hechler-Fayd’herbe, chief investment officer of International Wealth Management and global head economics & research at Credit Suisse in a call with reporters. “They (UNHWs) distribute wealth, across financial assets and non financial assets,” she added.

Most UHNWIs are collectors
This study comes in handy as investors, particularly the ultra-rich, find limited options to park their wealth. Low or negative yields on fixed-income instruments paired with heightened volatility in equity markets may make alternative investments a worthwhile pursuit.

Prior to the COVID-19 pandemic, the total value of collectibles in private collectors’ hands was estimated at around US$1 trillion, according to Hechler-Fayd’herbe.

Nannette Hechler-Fayd’herbe, Credit Suisse

In CS’ survey of representative UHNW individuals across various regions showed more than 70% were collectors, and a third of these were new collectors, according to Michael Strobaek, global CIO of Credit Suisse. “Also most clients I meet have “a passion” that they somehow make part of their investment portfolios, such as watches, jewellery, classic cars, paintings and sculptures, rare wines, and believe it or not even five-star hotels and football clubs,” he said.

Of the clients it asked, about 80% indicated they intended to collect the same kind of collectible or more in the future, said Strobaek. “Many clients I meet consider collectibles as a great and stable store of value/wealth for future generations,” he said.

Presently, nearly half of CS’ clients say they hold 2%–5% of their wealth in collectibles and 15% even have collectibles worth 5%–10% of their total wealth, added Strobaek.

“The key motivation of clients to collect is either pure passion and emotion, or emotion with a financial motivation/gain in view,” he said.

The fine wine market raked in US$5 billion of sales per year, estimated Credit Suisse. “Organic and biodynamic wines are becoming increasingly popular but some risks with ageing (oxidative faults),” it said. Credit Suisse tips Piedmont as an emerging region with “interesting prospects.” German Riesling and Pinot Noir may not be in demand but their production in small quantities means there might likely be an upside, said the bank.

A particularly insightful part of the survey for Asian clients would be in musical instruments. China and South Korea have been particularly strong growth markets for fine violins alongside the more mature Japanese market, said Credit Suisse.

While patronage of classical music often plays “a vital and often symbiotic role”, scarcity is a key reason for the ever-increasing value, notes the Swiss bank. Not surprisingly, there has been a steady 12%-15% on-year increase on average in value shown by a selection of Stradivari, Guarneri del Gesù, Bergonzi and Guadagnini violins.

There is certainly some interest, particularly by Asian UHNWIs to try and monetise some of these assets, said Hechler-Fayd’herbe. “Interestingly in Asia, indeed there is an interest for secured lending against collections,” she said. But there are complexities in terms of valuation expertise and regulations, she added, along with such assets being scattered across different regions.