· Over three in five (68%) consider passion assets to be more secure than traditional asset classes
· 8 out of 10 (82%) believe using passion assets to diversify a portfolio is a good bet for the future
· Almost half of investors (47%) would consider borrowing against their passion assets, with a third (32%) already leveraging these assets
· Jewellery & watches, collectables and handbags are most popular passion assets
Passion assets are often viewed as luxury collectible items or investments that are perceived to hold personal or emotional value beyond simply monetary wealth. However, according to research conducted by Fladgate LLP, a top 100 UK law firm, enjoyment and passion for luxury goods are not the only reasons for investing in passion assets.
While the key driver of interest in passion assets for the ultra-high net worth investor originates from the potential for personal enjoyment, the national survey of 320 sophisticated UK investors (including ultra- high net worth investors – UHNWIs) and 170 professional advisors to UHNWIs revealed that the current challenging economic climate is driving a broader range of investors to consider passion assets as a safe-haven to secure future investment returns. Indeed, three in four (74%) stated that concerns about the economy have prompted them to consider passion assets as an alternative asset class.
Low risk high reward
For many investors, understanding the balance between risk and reward is crucial to any investment decisions, particularly in the current climate. The research found that over three in five (68%) think that passion assets are more secure than other asset classes due to their perceived lower risk and diversification opportunities, while also offering higher returns.
Taking a deep-dive, investors expect high levels of returns from jewellery & watches (58%), art (58%), and classic & super cars (54%) over the next five years, with handbags, wine and jewellery & watches expected to have the lowest levels of risk over that period (54%, 53% and 53% respectively).
Aligned with this perception of risk and return, over half of the investors (55%) advised they would invest in jewellery & watches over the next five years, with two in five (41%) echoing this sentiment for investment into art.
The next generation of returns
As investors look to new investment pastures, the survey reveals that nearly two in five (38%) investors are expected to increase their investment in passion assets, which is higher than those increasing their allocation in traditional investments (35%).
It was also discovered that those who are involved in investment decisions for a family company or trust are even more likely than the average to increase investment in passion assets (47% and 42% respectively).
Best of both worlds
While traditional financial investment classes such a stocks and bonds are an important component of any diversified portfolio, the research shows that passion assets can be a unique source of diversification combining emotional and monetary value. An emphatic 82% of investors agreed that diversifying a portfolio with passion assets is a good bet for the future. Being bolder, UHNWIs feel even stronger about this with 9 in 10 (90%) agreeing with this statement.
In addition to the attractive investment opportunities, passion assets can also be leveraged to finance other investments. Almost a third (32%) of investors have already borrowed against their passion asset, and twice as many UHNWIs (67%) have leveraged their assets. Interestingly, nearly half of those surveyed (47%) would consider borrowing against these assets in the future.
Ella Leonard, Partner and Head of Fladgate’s Funds, Finance and Regulatory practice, commented: “Our research demonstrates that current economic headwinds are compelling investors and their advisers to take passion assets more seriously as they hunt for yield, with investors currently committing greater exploration and investment as the range of luxury collectables considered investment grade continues to grow.
“We are advising more clients about the legal landscape of investing in an area which was once predominantly focused on the fun factor of owning such luxury items. We foresee an increase in the number of investors leveraging their passion assets to finance other investment opportunities over the next five years. We have already seen, through to the end of August this year, an increase in the number of major passion asset transactions that we have been brought in to support compared to the same period last year.”
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