How do you put a price on passion?

Alternative assets are a hot topic right now. Having gained in popularity over the last few years, in part because of the sustained low-interest rate environment, alternative assets are now seen as a viable investment class, giving the added bonus of encouraging investors to learn more about subjects they might be passionate about.

Wine, classic cars, fine art, luxury properties – these assets are not straightforward to appraise or price. But get it right and the returns can be substantial.

At the recent Jersey Finance Private Wealth Conference in London, several high profile experts joined a panel to discuss the ups and downs of alternative asset investing, and to make the case for their own specialist area as the best asset class for investors to back in the current market.

Andrew Shirley of Knight Frank told the conference that property was showing double digit growth in some areas of Europe and was well worth investigating as an investment. He also made the point, that, unlike other asset classes, you can live in property – gaining enjoyment and utility from your investment while it appreciates.

If property isn’t your scene, investing in other ‘passion’ items might be more to your tastes. If you are into cars, a classic car could be a strong ticket. James Haithwaite of First Names Group ‘represented’ this asset class on the panel and suggested that the right car, kept in the right condition, was a sure fire hit.

But, he cautioned against taking risks. “Providence is key”, he said. Investors can often be led by their emotions. A gorgeous car might catch their eye, but an expert is needed to ascertain its true value. In one case he noted that an investor had been cautioned not to buy ‘the car of his dreams’ because it’s providence was unknown. After appraisal it was found to have been extensively modified – something that reduces a car’s value.

Like property, it is also possible to use your investment. Moderate use of classic cars, including track days, does not diminish their value to the extent that you might expect. Caution is necessary though, as an accident that damages the vehicle would be detrimental to your investment!

Unlike cars or homes, one investment that loses all of its value if you use it is wine. Of course, you will get a great deal of enjoyment from drinking it, but once it’s gone, you can’t sell it on and see a return. Wine expert Ella Lister of Wine Lister explained that wine’s use as an investment class did fluctuate, based on the perceived market. In the current climate, it was increasing as there is a market for consumers, particularly in China, who are buying fine wines to drink. That means that investors have a market to sell their wine to generate a return, and therefore supply of wine reduces, increasing the value of wine laid down for investment.

Interestingly Ella noted that not only is it wise to use wine to diversify a portfolio, but that if you are buying wine as an investment, it is important to diversify that section, buying wine from different regions and growers. It is also important to keep wine securely and in the right conditions, necessitating the use of bonded warehouse – you can’t just keep it in your garage!

Another market where investors are having an impact is fine art. Harvey Cammell of Bonhams UK explained that the fine art market, for so long made up primarily of collectors, was now being driven in part by investors. Harvey noted though that investors looking for real value were not buying top tier names, but rather looking at left field. He mentioned that while Henry Moore was commanding high prices at auction, growth in value was going to come in lesser known artists such as Barbara Hepworth or Denis Mitchell.

In all cases however, moving into non-typical asset classes carries risk that must be offset by using a trusted advisor. Buying the right type of asset and not being led by emotion is important, as is the need to guard against fakes and forgeries, or assets that have lost value. Storage is also important to retain value, as is the type of financial structure used to hold the assets while their value increases.

In all, if the complexities of dealing in special interest items are dealt with effectively, alternative assets can provide good returns, but perhaps more importantly, investors can also get real enjoyment from entering the world of fine wines, fast cars and amazing art.