Alternative assets: the fun side to investing

PUBLISHED: Thu, 12 Oct 2017 11:49:19 GMT

Bongani Khulu | Barclays Africa

Investing in art, cars and other collectables is fast catching on in Africa for investors looking for more creative ways to diversify their portfolios. Yet, alternative investment strategies are not just about buying collectable items. A complete strategy will include looking at commodities, structured products and derivative swaps, and taking a holistic view of a portfolio.

By far the hottest trend is investing in collectable items, although this investment class, while fast growing, is still emerging across Africa. The Africa Wealth Report 2017, issued by AfriAsia, notes collectables, especially art, wine and classic cars are “an increasingly popular way” for African high-net wealth individuals to store their wealth. The collectables category is growing at a rapid rate; accounting for 1.1 percent – or $8.8 billion – of the assets of African high net worth individuals in 2016, compared to only 0.6 percent in 2006.

Africans are, according to the report, investing in items such as fine art, fine wine, cars, yachts and watches. However, there are several categories of alternative investments that are still emerging, and, as a result, are speculative. Once the market is mature, then it’s feasible for people to put their money in those collectables.

Fine art and classic – not luxury – cars as two of the categories that have matured to the point where they make sense as alternative investments.

Absa, for example, hosts the largest corporate art collection in Africa. It also has the biggest coin and note collection in South Africa. Together, these collections constitute around 20,000 pieces. These fine works of art – which range from JH Pierneef to Gerard Sekoto paintings – can become an inspiration for investment forays.

For many, the news that an Irma Stern painting that sold for $20 000 in 1995 fetched more than $2 million in 2011 will be a big drawcard for investors seeking alternatives to the usual offerings. The trick is for investors to take a holistic view. They need to consider aspects such as insurance, whether they can (legally) export what they’ve bought – as some paintings may be great investments, but cannot legally be taken out of South Africa – and the veracity of the item they’re buying.

Investing in these areas can be tricky, as people can be misled into buying a painting they think is a Rembrandt, only to discover it’s a really good copy – and worth a fraction of the price. There is also the risk of people buying a painting by a local artist, hoping to auction it overseas in a few years, only to find out it’s a protected work, and can’t leave South Africa.

This is where holistic advice comes into play. Investors need to be sure that what they are buying is an investment: that it will make them money, that it can be (legally) sold by generations to come, and that it’s insured while hanging on a wall.

It’s also important to consider how investors will fund their future wealth. This is also taken into consideration under our holistic approach to investing.

When it comes to classic cars, one should note that new, flashy, cars as an investment vehicle don’t make sense. The newly wealthy often put cash into flashy cars, without fully understanding that the car will lose value, especially initially. Cars need to be treated as an investment, and long-term ones at that.

The Africa Wealth Report 2017 notes that, between 2006 and 2016, classic car prices rose by a massive 180 percent, making classic cars the best performing investment class for high-net wealth individuals over this period.

Absa has an international partnership that allows clients to invest in classic cars, without any of the costs of physical ownership such as insurance, while still benefitting from upside potential. This means that, when investors travel outside of Africa, it is possible for them to enjoy a ride in these cars, which means they get the beauty, and upside, of the investment without the maintenance costs.

When it comes to wine, while South Africa has a great industry, the market is still emerging – making this sector one of consumption, not investment.

There are many areas you can invest into; the trick is making sure your investments work, for generations to come.

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