September 24, 2010

Top Five Really Alternative Investments

Where the well-heeled are parking their cash

Okay, so managed futures, as an asset class, performed well. They were up when the market was down and down when the market was up; the very definition of non-correlation. But most other so-called alternative investment products and strategies didn't live up to expectations.

"Those non-correlating assets sure were correlated during this downturn," says Russell Diachok, president and CEO of Geneos Wealth Management, a Denver-based broker-dealer, in Investment Advisor's September cover story.

If the current crop of alternative offerings just isn't doing it for your more adventurous clients, here is a list of exotic investments more suited to their liking.

1). Wine (of course)

If the price goes bust, they can always get drunk. The Wall Street Journal recently noted top vintages have outperformed almost every other asset class over the past decade.

"The plus side of wine investment is that as time goes by it gets scarcer as people drink it. The likelihood is that over time--as the wines get older, rarer and in greater demand--prices will inexorably increase," Mark Bedini, chief executive and founder of wine brokerage Fine + Rare Wines Ltd, told the paper.

For those of us less well-to-do, the other investment route the Journal highlights is through wine investment funds. These tend to charge a 5% subscription fee, annual management fees of 1.5% or 2.5% and an average exit fee of around 20% of the upside. The Vintage Wine Fund, Wine Asset Managers and The Wine Investment Fund have all been authorized by the U.K. Financial Services Authority.

2). Chocolate

The New York Times alternately describes him as a Willy Wonka and a Bond-style villain, depending on one's point of view. Except that rather than holding the planet hostage to Nuclear Armageddon from his secret base on the Moon, hedge fund manager Anthony Ward is trying to corner the cocoa market.

By one estimate, the Times notes, he has bought enough to make more than 5 billion chocolate bars. His activities have helped drive cocoa prices on the London market to a 30-year high.

Through his private investment firm, Armajaro, he now controls a cache equal to 7% of annual cocoa production worldwide, a big enough chunk to sway prices.

3). Arable farmland

Dr. Michael Burry, who predicted the collapse in mortgages and made huge profits for himself and his investors at Scion Capital LLC by betting against subprime mortgage bonds, said in a September 7 interview with Bloomberg News that his current monies were riding on arable farmland properties with water.

Burry's previous bets against the mortgage bubble, documented in an April Vanity Fair article and in the book "The Big Short" by Michael Lewis, were wildly successful, owing at least in part to his attention to detail and willingness to plod through thousands of documents. Once his strategies began to attract notice from large firms, including Vanguard, he opened Scion. Later he would convince Goldman Sachs to sell him credit default swaps against CDOs he'd researched as primed to fail.

Now he's turned his attention to real estate once more, this time in the form of actual land--but not just any land: productive farmland with water present on the property--and has devoted a "significant" portion of his portfolio to such assets.

4). Art

Raymond Jamesfounder Tommy James' art collection is the stuff of legends, with many pieces on display in the halls of the company's St. Petersburg, Fla., headquarters. Another company swanky enough to adorn its walls with fine art wasn't quite as successful--Lehman Brothers. In a depressing sign of the times (or reminder of the recent past), Lehman Brothers Holdings is selling off part of its art collection, including works by Gerhard Richter and Maya Lin, in the hopes of returning millions to creditors.

Reutersreports that despite a lukewarm modern art market, Sotheby's estimates the auction of 160 works in New York on Saturday will yield $10 million. Proceeds of the sale will be used to pay creditors. Many of the pieces up for auction were acquired by asset manager Neuberger Berman, which Lehman bought in 2003. Neuberger re-emerged in 2009 as an independent asset manager.

According to Reuters, the most expensive item up for sale is Damien Hirst's "We've Got Style (The Vessel Collection - Blue/Green)," a series of three cabinets holding ceramic objects that Sotheby's estimates could fetch between $800,000 and $1.2 million. Other major artists whose work will be auctioned include Andy Warhol, John Baldessari, Richard Prince and Robert Rauschenberg.

5). Rock and Roll Paraphernalia

"I want money, that's want I want," sang John Lennon, whose hand-written lyrics for "Imagine" coincidentally sold for $1.2 million in June. Whether it's Kurt Cobain's guitar or Jimi Hendrix's headband, aging baby boomers see value in owning music history. And sometimes, as in the case of Microsoft gazillionaire Paul Allen, they'll put it on public display. Other recent auction items to help investors stash their cash include:

  • ? A gray cotton jumpsuit worn by guitarist Eddie Van Halen for the "1984" album and number-one single, "Jump."
  • ? One of Michael Jackson's sofas.
  • ? Lennon's Corduroy boots, well worn.
  • ? Elvis Presley's personal script for the film "Love Me Tender."

Joyce Hanson and Marlene Satter contributed to this article.

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