Since 2007, an increasing number of millionaires have shown interest in alternative investments, such as art, classic cars, wine, jewellery, gems and watches, which in times of economic uncertainty can deliver higher returns than equities. According to a new forecast report from WealthInsight, luxury investments are expected to grow at a Compound Annual Growth Rate (CAGR) of 10.34% to reach US$621 billion by 2017.
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In five years, luxury investments have increased in value at a CAGR of 14.58%, from US$210 billion in 2008 to US$362 billion in 2012. Millionaires of developed countries, such as the US, the UK, Germany, France, Switzerland, Australia, Canada, Japan and Poland, contributed the largest share in luxury investments, but millionaires of emerging countries, such as Brazil, Russia, India and China, registered the strongest growth at a CAGR of 22.24% since 2007, with luxury investments growing from US$43 billion in 2008 to US$96 billion in 2012.
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By GlobalDataThe total luxury investments of millionaires is expected to grow at a CAGR of 10.34% to reach US$621 billion by 2017. According to Ouliana Vlasova, Head of Content at WealthInsight: ‘Looking forward, millionaires’ preference towards real assets is expected to drive demand for art assets and other collectables’.
Service providers anticipate demand for art finance and art investment banking
Art funds have had limited success in developed markets compared to China. China has continued to drive demand for value-added services as young millionaires began to amass substantial collections and look for ways to diversify their wealth. While the majority of investors in developed markets do not want to invest in third-party art funds they are more inclined to develop their own investment vehicles to maintain transparency and control.
Rise of funds and exchanges are making diamonds a more popular alternative asset
With the increase of diamond prices and transparency, the rise of individual investors purchasing diamonds is inevitable. This has been twinned with a rise of diamond exchanges, such as the IDEX (International Diamond Exchange), IDE (Israel Diamond Exchange) and the recently opened SDX (Singapore Diamond Exchange). The IDEX Online Polished Diamond index rose 40% from July 2004 to 2012 and since the SDX was launched in 2012, Singapore has become the diamond trading hub of Asia.
Wine funds weather the decline in blue-chip wine prices
Successful wine funds have diversified away from blue-chip wines. Many millionaires are adapting their tastes to new burgundies and less significant Italian wines, in addition to other lesser known vintages. "As the Hong Kong and Chinese market becomes increasingly fixated with burgundies and, to a lesser extent, the super Tuscans, the less well-known wines are becoming well known among Chinese high net worth circles", says Oliver Williams, an analyst at WealthInsight.
Classic cars have not made the transition into an asset class
While the classic car market is expected to continue growing over the forecast period, driven by millionaires from emerging countries including China, India and Brazil, the complexity of the market means classic cars remain just cars, without having made the transition into an asset class.
Many millionaires from emerging countries in Asia, Middle East and Latin America are buying into this lifestyle by amassing their own collections of classic cars. However, these regions do not possess their own history of car manufacturing and, as a result, have few in the way of native classic cars.
For investment trends in art, classic cars, wine and watches, gems and jewellery, please see attached whitepaper: Luxury Investments: A mix of passion and profit
