Alternative assets: Fine wine vs. Art 

Fine wine continues to provide safe diversification in alternatives as suggested by the global investment manager Cult Wines who say the investment in the assets provided less volatility and better risk-adjusted returns in the last year as compared to other alternatives.   

It has been offering higher returns since the last ten years from 2009 to 2018, where it delivered a stronger performance of 9.2 percent, while, other categories like commodities delivered a return of -13.8 percent and hedge funds delivered  -4.8 percent. 

• The asset performed well when the other areas were in negatives. 

• Even during recession wines continued to outperform and remain almost stable.  

• Since this remains one of the top choices of investors, scammers are offering lucrative deals related to such categories. 

• In the UK, last year at least 5 men were collectively sentenced for defrauding £1m from investors. 

• Alternative asset allocations offer mixed results with a low correlation to other assets. 

• Artcontinues to grab the attention of millennial buyers who are participating in auctions, fairs, exhibitions, and talking about such assets. 

• The report by art markets shows the number of wealthy buyers contacting art dealers, auction houses, and fairs increased in the last few years. 

• Some of the private banks are helping wealthy investors to get a rare collection.  

The study by Knight Frank finds more than 50 percent of the collectors in the top 200 belong to the US, where the recent tax changes by the Trump administration led to the removal of art as the assets from 1031 exchange and this will make the collectors defer capital gains tax by avoiding exchange of art. 

The modification in taxation will make the older investors hold the artwork and pass it on to the next generation, and avoid a sale to prevent 28 percent capital gains bills. 

How to recognize the most profitable work?

Auction houses have been promoting exceptional artworks.  Some high-value sales were made in the sector by Christie and Sotheby’s, whose recent announcements suggest the wealthy collectors are still interested in selling some artworks. 

Original artwork with oil paintings can get higher values than the work made in editions or photographs. Scarcity of work raises the demand and value in all categories of investment. 

Some investors buy a piece, principally, for the sale of history, or due to the name associated with the piece, but the trends are now changing where the new rich buyers are seeking new styles. 

Some buyers exhibit the piece of art at museums or at exhibitions that can increase the value of the work. Especially, the ones in good conditions exhibited widely can get a strong reputation in the secondary market. 

Investors should know there are many scammers in this sector. Some small private institutions make use of the market to sell fraudulent schemes. 

Recently, two firms- one in Birmingham and the other in Blaenau Ffestiniog were identified to be involved in abusing at least £1.4m investors’ money into such schemes where the investors were not able to identify the exact nature of the business and were misled or bullied into the schemes.