EXCLUSIVE: WealthMatters Conference Puts Passion, Alternative Investment Under Microscope

Tom King

WealthBriefingAsia

13 November 2014

Alternative investment is not just a term used these days for hedge funds, private equity or commodities such as iron and wheat. More exotic fare such as fine wines, classic cars and luxury watches can have their place, as a conference organised by the publisher of this news service heard in Singapore recently. (To see previous conference reports from the same event, click here and here.)

At the third panel of the Singapore WealthMatters conference at Raffles, held in association with Coutts, it brought together an eclectic combination of professionals and experts in the investment space. With alternative investments making up a little over 14 per cent of Asian portfolios (excluding Japan), the panel was in a good position to discuss the benefits – and problems of these emergent asset classes.

This panel comprised of Thai Nguyen, general director of Vinawealth; Seamus Donoghue, chief executive of Allocated Bullion Solutions; Marco Kaster, investment director of Stanley Gibbons Asia; Dominic Khoo from The Watch Fund; Nicholas Pegna, director, Southeast Asia, Berry Bros. & Rudd, and Johnny Heng head of investment services for Asia at Coutts.

As heard at other conferences this news service has run, a definition sometimes given for alternative investments is that they are less liquid than traditional asset classes such as public equities, although arguably some alternatives such as precious metals can be more, not less, liquid than corporate bonds, for example.

The panel was asked about factors that are driving investor preferences in this space.

With hedge funds, their continued use of long lock-in periods, and their high fees, had started to be detrimental to the sector, which is actually reducing their use in portfolios in percentage terms, said Coutts’ Heng.

Over at the luxury end of the scale, watch investor specialist Khoo said many investors were fully invested in the traditional asset classes and “passion investing” was gaining significant traction. He noted too that the typical age of investors they engaged was now getting younger.

Kaster from Stanley Gibbons, the UK-quoted firm known as retailer of stamps for collectors, said he was clear that “passion investing” in Asia is expanding. Kaster said most of the investors/collectors had seen robust capital appreciation.

As far as the precious metals market was concerned, Donoghue said its market was healthy. An issue is that because physical gold is a high-value item, there has to be strong provenance established for holdings and it must be stored with trusted entities.

From Berry Bros. & Rudd, the renowned wine storage and trading house, Pegna said that while many of its clients had begun as investors, they had moved to become collectors as well.

The panelists were asked how to gauge risk across these asset classes. Kaster emphasised the need to engage with specialist sector experts in each passion investment field in order to mitigate risk. Pegna thought one way to lessen the risk would be to purchase scarce wines, such as rare Burgundy wine, for example.

The panel was then asked if and how passion investments, frontier markets and commodities were correlated with the markets in general. The issue of whether one can obtain genuine diversification by use of alternatives can be hotly contested. Nguyen noted that the Vietnamese market had begun to shadow the US market; she said this was mostly driven by large US exchange traded funds investing into Vietnam.

Donoghue from Allocated Bullion Solutions said Asian investors had always purchased physical gold and were still doing so. China, Thailand and India were consistent purchasers. Gold may not be correlated directly to currency markets in general but it could move in step with currencies such as the Australian and Canadian dollars where gold extraction is an important industry. Even away from such considerations, gold as an asset could also protect investors where economies are mismanaged, he said.

Khoo said many ultra high net worth individuals were themselves recession-proof, so he saw no correlation between the markets as a whole and those who invested into the watch fund. Berry Bros & Rudd’s Pegna said his firm had seen correlation to the markets in its China business, perhaps in part due to some decline of conspicuous consumption.

As an example of a low or even negative correlation case, Kaster from Stanley Gibbons noted how there had been a 35 per cent jump in the rare stamp and coins segment of his business during the global financial crisis when mainstream markets crashed.

As for where markets are headed, Kaster estimated that investors had about 9 per cent of their wealth in passion/luxury investments and that there was therefore plenty of room for growth. Nguyen said in luxury investing, the Vietnamese market was immature and had a relatively low level of sophistication but was growing quickly. Access to the Vietnam market was limited for investors but returns could top 20 per cent per year.

The Watch Fund’s Khoo said the global watch industry was worth around $50 billion with the most expensive watch in the world priced at $15million. He saw no reason to think that the watch industry would not continue to grow and that even with devices such as the iWatch coming to the market, this would not hurt the very top end of the watch business.

Pegna recommended investors look into new wine regions and that investors should invest in the wine itself and not in wine funds.

Heng from Coutts added that passion investments would be held outside of the traditional investment portfolios and held more for inheritance to the next generation rather than purely for investment.