In the wake of the global financial crisis, wealthy investors have sought out more diverse investment opportunities. This demand has increasingly driven interest in assets that have intrinsic value, especially when their supply is limited.
This week, Coutts, a private bank, rolled out The Coutts Index: Objects of Desire, intended to provide the global benchmark for monitoring the performance of these items, which it calls “passion assets.”
Developed in conjunction with Fathom Consulting, the index captures the price return in local currency (net of the holding costs) of 15 passion assets across two broad categories: trophy property and alternative investments.
Alternative investments comprise fine art, precious items and collectibles — fine wine, stamps and coins, classic cars, rugs and carpets, and rare musical instruments.
Coutts reported that the index had risen by 2.8% during the first half of 2013, and by 77% since the beginning of 2005.
Classic cars rose by 257% since 2005, outpacing all other alternative investments examined for the index by more than 80 percentage points over the 7 1/2-year timeframe.
Classic watches rose by 176% from 2005 to June 2013.
Over the same period, jewels in the precious items category returned 146%, while traditional Chinese art was the standout performer in the fine art space, rising 163%.
Coutts said that over the past 7 1/2 years, the index had risen 82% in U.S. dollar terms, while the MSCI All Country Equity Index rose 53% over the same timeframe.
The trophy property component of the Coutts Index, which is supplied by Savills World Research, comprises “billionaire” residential properties in 10 global cities and “leisure” properties in the most desirable leisure destinations associated with those cities.
Both measures lost value in the run-up to the global recession, Coutts reported, but billionaire property values have shot up since then, doubling from 2005 to mid-2013.
Recent research in which Savills participated identified the “hottest” real estate markets for ultrawealthy families.
“The Coutts Index has been created to measure passion assets, or objects of desire, in terms of performance, cost of storage and currency,” Mohammad Kamal Syed, head of strategic solutions at Coutts, said in a statement.
Syed said that while many alternatives have provided spectacular returns, there is more to investing in these assets than price appreciation. For many ultra-high-net-worth individuals, profit is furthest from their mind.
“Owners can bond with like-minded people in an elite network, with assets offering escapism and a chance to re-enact history,” he said.
One thing the index cannot measure is happiness, Syed said. “The idea of someone paying $50 million for an uncomfortable old car, with windows that don’t work and a noisy engine, seems illogical. In many ways it is.
“But the happiness such a car can bring is immeasurable.”
Check out these related stories on ThinkAdvisor: