A Thing Of Beauty Is A Joy Forever... And A Good Investment?: The Return Of Passion Investing
I have written previously in Luxist concerning the changing definitions of luxury, and how in the course of a year or so, statistics show that the UHNWs and HNWs have shifted their mindset, and thus the paradigm, from conspicuous to conscious, from megalolmaniacal to mindful. This change appears to one consequence of the complex economic culture most of us have experienced since mid 2008. Luxury has evolved now into more than just a major credit card spend with an object purchase. The spend has to have the propensity to make us FEEL a certain way. It has become more about the meaningfulness and the mindfulness of the spend, with the deeper significance of having well-curated, purposeful, inspirational, authentic emotions evoked also by the object purchased.
In a recent report from American Express Business Insights, it was noted that luxury sales are up, gaining 9% in the second quarter of this year. In yet another new survey from Unity Marketing, one of many studies that focus affluent consumers, reports that 73% believe that the recession is still continuing no matter what the economists say, while 21% believe the economy is in recovery. Unity conducted the research in July 2010, with adults whose average income is $307,000. 44% of this group planned on spending less, and rather saving and investing more in the next year.
These statistics, coupled with the economic time in which we live, may be the perfect climate to create the perfect storm for passion investing. Indeed, in a recent article in the Wall Street Journal, passion investing was discussed, as it is again becoming a viable method in which the well-curated, authentic experience, in terms of investments, can be acquired.
The question is, do such investments belong in a basic investment portfolio with traditional stocks and bonds? It seems more possible now. According to The Capgemini and the Merrill Lynch World Wealth Report 2010, it appears that HNW people are returning to the passion investment. The world's population of high net worth individuals (HNWIs) grew 17.1% to 10.0 million in 2009. HNWI financial wealth increased 18.9% from 2008 levels to $39 trillion. After losing 24.0% in 2008, Ultra-HNWIs saw wealth rebound 21.5% in 2009.
The Wealth Report continues:
"As HNWIs cautiously returned to financial markets, they also returned to passion investments in 2009. With financial markets still in flux, some HNWIs indicated they are approaching their passion investments as "investor-collectors," seeking out those items that are perceived to have tangible long-term value. The two categories that are most attractive to these "investor-collectors" are Art and Other Collectibles such as coins, antiques or wines. The demand for passion investments overall is expected to increase in 2010 as wealth levels rebound. This is evidenced by the fact that auction houses, luxury goods makers and high-end service providers all reported signs of renewed demand toward the end of 2009, and in the early part of 2010".
There is even now a passion investing website, www.passioninvestments.org. out of Geneva Switzerland. Here is what they say:
Passion Investments guarantees its clients a return on their investment, whether it is a financial return, a return in terms of enhanced reputation, privileges, special access to information, places, exceptional people or a return from participating in the project. Your seat at the Cannes film festival, your exhibition room in a museum in Rome, your vineyard in Bordeaux, your room in a chateau in the Loire Valley, your research institute in Munich, the artist that you patronize personally in Moscow, your golf course in Tuscany, etc., thanks to your Passion Investments. But pleasure and pride do not mean a lack of financial benefits: most Passion Investments provide for investors to share in the financial success of projects, together with tax breaks for investors.
A number of firms have launched funds that invest in passion. A good example is The Fine Art Fund , that sees art as an asset class.
The attraction of art as an investment is that fine art provides an opportunity for portfolio diversification into an area that has historically provided high returns and shown a low correlation to other asset classes. Since the end of World War II the value of art works has appreciated enormously. Quality works of art have proved to be a remarkable store of value. This is predominantly due to increasing rarity caused by an expanding demand from museums and collectors, and dwindling supplies. The very rapid price rises that characterised the market at the end of the 1980s and the early 21st century were the result of speculation. The market has become much more selective, with an emphasis on quality. Historically, art has provided significant financial returns.
One of the most all-inclusive and interesting areas of passion investing is the emotional assets fund, whose website is www.emotionalassets.com that merge the worlds of collecting and investing. They define emotional assets as: art, photography, contemporary design, antique carpets, vintage watches, vintage jewelry, ceramics, musical instruments, architecture, rare coins, rare stamps, maps and atlases, rare manuscripts and rare antiquities. They believe these areas of emotional assets are ( like the Fine Art Fund's description of art above) asset classes, and the fund manager, Bernard Duffy, suggests an 8% allocation to passion investments in any serious portfolio.
There is one other area that also can be considered at passion investment, and that is real estate and resort investment. These real estate purchases could also be considered trophy buys. Greg Pitts, a senior investment advisor at Realty Financial Resources near San Francisco, suggests " Now, there are several high net worth individuals currently looking to diversify into real estate assets and new players looking at the luxury resort space for many reasons: they are not getting consistent ROI on their other investments, there seems to be an element of passion behind the investment into a luxury property. I also believe that the concept of investing in brick and mortar is very appealing as it is a hard asset, more protected from the fluctuations of the market. Also, ocean front land in a prime location is irreplaceable and since there is a finite supply there is additional comfort in such purchases...same goes for ski-in ski-out locations in highly desirable ski areas. This is certainly not a new trend but I do feel like there are more high net worth types previously not in the space that are taking a hard look now. In the past few years I have seen a very well- known Hollywood actor enter the luxury resort space, several sports team owners, several high tech industry and Forbes 500 type business leaders enter the luxury resort space as first time investors."
What does all this mean? To many, these are the practical consequences of the paradigm shift of the meaning of luxury, adding even more scalable dimensionality than before. Now, there appears to be three extra dimensions that have evolved within the past year, almost before our eyes, and all possessed by most passion investments: One is scarcity – Picasso will not be painting anymore, and there is a finite supply of homes in ocean front or ski in/ski out areas, plus two more subtle differentiators: history -- whether the object has a substantial and verifiable story behind it, and legacy -- what the story will mean to future generations.
Dr. Jim Taylor, of the Harrison Group, was a keynote speaker at the Luxury Summit 2010. He concluded his presentation by saying, " For our customers, the purchase of a luxury good is not a casual act. Its sends a message about who they are... in that regard, luxury is not a category. It is the point in virtually every category, from soup to systems, that distinguishes the sublime from the merely excellent. There's a moment of sublime luxury where the product symbolizes the way we feel."
Could the feelings of sublimity, scarcity and legacy all be encapsulated in the strength and authenticity, and ultimate popularity of passion investing? Will it become an even stronger point of reference in the classic wealth management lexicon? Will the passion investment allow the buyer to feel and know the difference between the sublime and the merely excellent?