Objects beyond the profit motive
Do investments in ‘treasure assets’ make financial sense? Or is the profit principle eclipsed by the allure of such precious items?
For buyers of the kind of ‘treasure assets’ that make up a substantial – and much-coveted – part of most individual wealth portfolios the last few years have been full of uncertainty.
Investors in antique furniture, for example, saw valuations across the market tumble by another 3 per cent in 2012, according to the Antique Collectors’ Club’s Annual Price Index, continuing a decade of constant decline. By contrast, owners of precious jewellery enjoyed a substantial appreciation, with auction house Sotheby’s reporting an18 per cent uplift in sales of such items. Just one of the sparkling highlights: a 34.98 carat diamond, the Beau Sancy, which changed hands for $9.7 million after 400 years within of the royal households of Europe.
In fact, a recent study by Ledbury Research reveals that jewellery is by far the most popular of the treasure assets that, on average, make up 10 per cent of the total net worth of wealthy individuals. The survey, conducted on behalf of Barclays Wealth and Investment Management, showed jewellery was owned by 70 per cent of the high net worth individuals polled, while antique furniture, owned by almost 40 per cent, was a close third to fine art, which was owned by 49 per cent. Other treasures cited by the 2,000 wealthy respondents included precious metals, fine wines, tapestry and rugs, sculpture and classic cars.
Pleasure before profit?
The popularity of such assets, despite their fluctuating values, underscores how investment in rare, precious objects isn’t necessarily motivated by the prospect of handsome returns. It has more to do with emotion and aesthetic pleasure.
The profit principle, of course, remains important. “In times when paper wealth is seen to be more risky, investors are drawn to real, tangible assets,” says Vikram Mansharamani, one of the report’s contributors and the author of BoomBustology: Spotting Financial Bubbles Before They Burst. At a time when traditional financial markets remain volatile and interest rates low, the possibility that investing in treasure could help to diversify portfolios and protect against inflation and currency devaluation is certainly alluring.
Moreover, the post-crisis mood of distrust in some of the more exotic financial instruments is leading many wealthy individuals to feel that tangible, scarce and non-fungible investments could provide a stable store of value – a treasure hoard – in uncertain times, concludes the Ledbury/Barclays report, ‘Profit or Pleasure? Exploring the Motivations Behind Treasure Trends’
What is clear, however, is that when considering such assets, it’s the pleasure principle that comes out top. On average, 62 per cent of treasure assets are held primarily for the pleasure of owning them. By contrast, only 18 per cent are owned purely as an investment and only 21 per cent to provide financial security if conventional investments fail.
Opaque cost of treasure
For the majority, that focus on emotional rather than financial returns looks even more apt when some of the other challenges of treasure assets as an investment class are factored in. As the report notes: “Collectibles markets are riddled with inefficiencies, are frequently opaque and illiquid, and are extremely volatile and risky. They involve high transaction, storage, insurance and appraisal costs. Appreciation in value can also incur a higher tax burden in some jurisdictions, such as the US. Some categories of treasure are also highly susceptible to vagaries in fashion, which can cause prices to fall as dramatically as they have risen.”
For these reasons, when it comes to rare and precious collectibles, the emotional returns, rather than the financial ones, may be greater. In other words, wealthy individuals acquire treasure because they enjoy it. It may give them an emotional or aesthetic pleasure, or reflect a passion that they want to share and discuss with family, friends or others. Some may enjoy loaning their treasures to museums; others may simply wish to bask in the status that ownership of a rare and beautiful item can bring.
“These are all perfectly legitimate reasons for accumulating treasure, and these personal holdings can rightly form an important part of any individual’s total wealth,” the report says. Or, as one commentator puts it: “There is more enjoyment in displaying art on your wall than in displaying stock certificates.”
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