Super rich develop a passion for cars, wine and property
GENEVA - From Spanish shopping centres available at bargain prices to wine, art and classic cars, so-called alternative investments are gaining appeal to the world's rich as returns elsewhere wane, wealth managers say.
The super rich - typically those with a fortune of $30 million or above - have increasingly been straying from investing in conventional financial products, some private bankers noted, as low interest rates reduce the lure of cash piles or bonds.
The proportion of so-called "passion investments" in portfolios has gone up about two to three times in the past five years, according to Alexander Classen, who runs the international arm of British private bank Coutts.
"Clients have become increasingly sceptical about traditional investing," Classen told the Reuters Wealth Management Summit in Geneva. "And ... they started witnessing some of the returns they can achieve in real estate, in old watches ... while having fun at the same time."
To be sure, combining investing with hobbies is far from a new trend among wealthy families, whether they are patrons of painters as in the Renaissance or are members of a newer wave of Asian money snapping up vineyards in France.
"All this type of luxury is part of the portfolio of a very rich person," said Manuela D'Onofrio, head of global investment strategy at the private banking arm of UniCredit, adding she had one client who had as many paintings by Italian master Canaletto hanging in his apartment as the Metropolitan Museum Posters she had in her own.
But there are also signs these bets have been paying off in recent years. An index created by Coutts to track the profitability of 15 passion investments such as jewels and art showed in January these had returned 77 percent since 2005, compared with a 53 percent return in the MSCI All Country Equity Index, in dollar terms.
Classic cars were the best performers over that period.
The number of millionaires in the world, meanwhile - of which ultra-high net worth individuals made up 0.9 percent - rose by 2 million last year, and the group grew nearly 14 percent richer.
Real estate investments are also an increasing draw for such clients and some see the prolonged property slumps in some corners of Europe such as Spain as an opportunity.
"Some Latin American clients want to invest ... in the current Spanish market," said Alvaro Morales, who heads Santander's international private banking business.
"It's any commercial centres, buildings, offices ... it's something they are buying for rental income," Morales said, adding clients from the region wanted to diversify with investments in other countries.
Real estate investments make up between 20 and 30 percent of the portfolios of Santander's private banking clients, Morales added.
Spanish house prices have slumped about 40 percent from their 2007 peak and are still falling, while banks which got lumbered with properties on their books are increasingly keen to sell them, even at discounts.
Retailers, manufacturers and traders of luxury products are also taking note of millionaires' shifting investment tastes.
Wine Owners, an online trading and valuation business whose website features some fine wines offered at 26,600 pounds ($45,400) for 12 bottles, this month launched a platform aimed at wealth managers, so they can offer their clients a wine portfolio tracking service under their own brand.
In their investments and in their private lives, however, most of the world's rich are still shunning very exotic avenues, wealth managers said, adding they still spent money on more traditional luxuries such as yachts and houses.
"One of the things we have not seen, and it seems to be picking up in the U.S., is ... space travel," said Norman Villamin, chief investment officer for Europe at Coutts & Co. "I haven't talked to any of my clients who've said, 'I'm getting ready to go to space.'" ($1 = 0.5864 British Pounds)
(Additional reporting by Joshua Franklin and Maria Pia Quaglia)