February 4, 2010
This was wide-ranging discussion of asset classes, from art to wines to diamonds. Starting with three-year paybacks for small museums where art is displayed to the merits of art as investment, the theme was that art is crisis-resistant. Its value is also based on the emotional value that a buyer and seller ascribe to art, adding other dynamics to valuing it. The emotional value lessens downside risk, several panelists said. Some notable returns were cited. A statue that Dresdner Bank sold to Commerzbank for a few million pounds sterling later went on the block for GBP6 mln but by the time the gavel was struck, the price had risen to GBP65 mln.
Private equity represents a much larger part of the alternative investments universe. The advantages include knowing a company so well that the investor has “insider status”, better balance sheets and better governance. The lack of private jets was cited, partly in jest, but underlining cost discipline. The investment horizon is much longer than public equities but over the past 20 years, private equity has outperformed public by 600 bps and with less volatility.
Wine has returned an average yield of 15% per year over the last 60 years and is also pretty steady. The actual storage and mechanics of the market place, however, represent quite a learning curve. Diamonds also offer good returns, but only in several classes of stone that are considered investment grade.