Investments with a difference
Planning for your future is crucial, and a good financial planning advisor will work through the right type of investment opportunities for their client’s individual needs; but when a client is looking for something out of the ordinary, there are numerous options that provide an alternative to the three more traditional asset types (fixed income, equities and cash).
Business Angel Investing
Along the lines of ‘Dragons’ Den’, Business Angels invest in smaller companies that are not quoted on the stock market. Typically, you won’t see any return until the business is sold or floats on the stock market, which could take years, or not happen at all.
This is now a widespread avenue for start-ups to raise finance for their business. They not only raise capital to grow their business (which in some cases they may get from the larger financial institutions anyway), but key to the investment in my opinion is the potential to receive advice, guidance and work closely with investors who themselves have superb track records in building their own businesses. You cannot put a price on the counsel provided by most experienced entrepreneurs.
Peter Thiel was the first Facebook angel investor, making a 500k investment in a company now worth over $200 billion. Chris Sacca made an angel investment of $25,000 in the first round of Twitter. The company is now valued at over $30 billion.
Investing in Art
Art markets performed well in general during 2015 and over the longer term, there have been some reasonable investment returns. However, investors should expect that it could take time for buyers to appreciate the true value of certain contemporary artists. If you wanted a swift return on your alternative investment in art in 2015, European 19th century art would have been the market to choose, with a 20% return over a 12-month period on some pieces.
When it comes to collectable goods such as stamps or toys, the top tip seems to be to “buy something you like – and if you’re lucky enough, some of it might be valuable too.” Many items realize impressive sales figures at auctions, in private transactions, or through online platforms such as eBay and Amazon. Taking toys as one example, The Telegraph in the UK reported last year that Lego sets purchased in 2000, kept in immaculate condition, increased in value by 12% pa.
Star Wars action figures have done well over the years too, with some rare models selling for up to EUR8000.
It might be naïve for us to expect that every old car is to be considered a ‘classic’, to rise in value and return a profit. However, auction sale prices can provide you with a good barometer of investor appetite in a particular sector.
For example, the 1954 Mercedes Benz W196 Grand Prix race car sold for a record $29.5 million at a British auction to an unidentified private buyer. The car was used by Formula One driver Juan Manuel Fangio.
In the same category of classic cars, Ferraris from the 1950s and ’60s have seen some high returns in the past. A 1967 Ferrari GTB NART Spyder sold for $27.5 million, and several more went for prices between $10 million and $20 million.
Football is now a big, global business. Football clubs, much like listed companies, remain open to potential investors and, in some cases, supporters yearn for the backing of wealthy individuals, in the anticipation that investing funds into their club will yield immediate success.
Nowadays, you do not have to be a billionaire to buy a share in a football club. Over the last 2-3 years we have seen the emergence of investment funds open to private investors, particularly in Asia, focused on the English top league. For example, one such fund aims to derive the rate of return by investing in on-going TV broadcasting revenues, one of the main sources of funding for most sport clubs globally.
There are now more ways than ever to invest in film. Thanks to the advent of crowdfunding, potential film investors can invest into film projects for a few euro’s as opposed to millions. Spike Lee raised over $1.4 million for his film on Kickstarter.
So, can you really generate returns with these types of investments?
Traditionally, the alternative investment assets were held by institutional investors or high-net-worth individuals, mainly because of their complex structures, limited regulations and a relative lack of liquidity. However, increasingly these asset classes are becoming more widely available to smaller private investors interested in diversifying their portfolio outside of the more traditional investments. In summary, be sure to limit your more aggressive investments. I recommend to my customers that their ‘riskier’ choices in alternative investments should not exceed 5-10% of their overall portfolio. As long as you are aware of the various risks associated with investing into the alternative asset classes, they could generate that extra bit of return (alpha) over the longer term.
Gerard O’Brien LL.B LL.M CFP® QFA is a Certified Financial Planner and the Owner of Heritage Wealth, a Financial Planning practice based in Main Street, Midleton, Cork. For more information, contact Gerard at firstname.lastname@example.org www.heritagewealth.ie