Susan Kime, luxury columnist for JustLuxe.com, examines the recent surge of passion investing by the affluent
In May 2012, Edvard Munch’s The Scream sold for a record $120 million at Sotheby’s in New York after a period of bidding lasting just 12 minutes. It became one of a very few paintings that have sold in excess of $100 million. Others in this club include Picasso’s Nude, Green Leaves and Bust, selling for $106 million in 2010.
In 2011, a painting by Roy Lichtenstein sold for almost $40 million. Thirteen years previously, its owner purchased the artwork for just $2 million. In 2011, Gimcrack on Newmarket Heath by George Stubbs sold in London for $36 million; the painting had been previously purchased in 1951 for $20,000. Such stories of sales and purchases of these collectibles allure a certain kind of investor, especially when broader financial markets seem so capricious.
These are just a few examples of a strengthening economic trend and emerging type of investor, whose motivations have recently been explored by Barclay’s Bank, in their Wealth Insights series. This June, the fifteenth volume called Profit Or Pleasure? Exploring The Motivation Behind Treasure Trends was published, with research conducted by Ledbury Research.
“ Sales of these collectibles allure a certain kind of investor, especially when broader financial markets seem so capricious ”
The report looks at how high net worth individuals globally are holding – or seeking to hold – what Barclay’s calls ‘treasure assets’ – jewelry, fine art, classic cars, and antiques. Many of the statistics underscored the deeper significance of passion investing, especially and understandably prevalent during this time of economic uncertainty. Ledbury found the following:
1. Currently, wealthy individuals hold an average of 9.6% of their total net worth in treasure assets although, in some countries, this share is as high as 18%.
2. Precious jewelry, fine art and antiques are the most popular categories in terms of the number of people who own them. The most costly pursuit is the ownership of classic cars.
3. Relatively few wealthy individuals own treasure solely for its financial characteristics. Just 18% of the treasures that survey respondents own are held purely as an investment and only 21% are believed by their owners to provide financial security if conventional investments fail.
4. The emotional motivations for this type of asset can be grouped into three categories: enjoyment, social, and heritage.
According to Ledbury research, enjoyment is by far the most important motivation for owning treasure. Almost two-thirds (62%) of the treasure owned by respondents is held because of the pleasure that it brings them. The enjoyment motivation comes out on top everywhere with the exception of Saudi Arabia, India and Qatar, where financial motivations are more important. It is also particularly strong amongst older respondents.
“ Wealthy individuals hold an average of 9.6% of their total net worth in treasure assets. In some countries this share is as high as 18% ”
Dr. Greg B Davies, Head of Behavioral Finance at the Wealth and Investment Management division of Barclays, explains, “We have seen evidence of wealthy investors moving closer to their home markets when investing and into simpler financial instruments. The increased focus on treasure assets is part of that same trend and represents a general move toward simplicity, familiarity and tangibility.
“Treasure is important to people first and foremost for personal reasons, not financial ones. Owning these items is largely about enjoyment of life and has far less to do with financial motives or the achievement of financial goals.”
Owning treasure assets can also be socially motivated, an adjunct of the enjoyment motivation. About one-fourth of the treasure held by the survey respondents is held for social purposes, like sharing with friends and displaying interest to others. Wealthy individuals also acquire treasure for its heritage value. These individuals enjoy their assets, and want their descendents to enjoy them too.
“ Owning treasure items is largely about enjoyment of life and has far less to do with financial motives or the achievement of financial goals ”
If the results of this research need immediate external validation, it appeared to come this week with an article in Reuters, under the headline ‘Anxiety Rises And Wealthy Rush To Swiss Banks.’ The intriguing article explained that Swiss banks were, for the first time, running out of safe deposit boxes for the customers to store their precious assets, some of the “treasure” using the Barclay’s term.
Back in 2010, I attended the American Express Publishing Luxury Summit, where Dr. Jim Taylor delivered his keynote speech, addressing why luxury consumers choose to invest in luxury.
“For our customers, the purchase of a luxury good is not a casual act. Its sends a message about who they are…in that regard, luxury is not a category. It is the point in virtually every category, from soup to systems, that distinguishes the sublime from the merely excellent. There’s a moment of sublime luxury where the product symbolizes the way we feel.”
It seems even more true now, two years on, as the trend of treasure acquisition ascends. Passion investing is creating a redefinition in the asset management lexicon, engaging those investors to rediscover, through the simplicity of enjoyment, the sublime from the merely excellent.
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