Partner Article

The allure of investing in ‘treasure’

Richard Clark and Simon Patterson, Private Bankers at Barclays Wealth and Investment Management, Newcastle, investigate the allure of investing in treasure. They pose the question: profit or pleasure?

For many of our local clients, a report on “treasure” does not sound intrinsically financial, conjuring as it may images of pirates, shipwrecks and chests stuffed with gold doubloons. However, owning possessions that are financially valuable, emotionally pleasing and culturally significant is a timeless tradition and one that shows no sign of abating. “Treasure” assets, such as precious jewellery, fine art, wine, antique furniture, classic automobiles and precious metals are a recognised category of investment and form quantifiable portions of many of our investors’ portfolios.

Earlier this year, a version of Edvard Munch’s The Scream sold for a record USD$120 million at Sotheby’s in New York, after an auction lasting just 12 minutes. Meanwhile, last year was the biggest year ever for sales at art auctions. A painting by Roy Lichtenstein sold for almost $40 million, after its owner had purchased it 13 years previously for just $2 million.

Clearly, the current market for treasure assets can be a lucrative environment in which to operate. However, the complex rationale behind owning art, jewellery, wine, or indeed any such collectible, needs to be scrutinised, if investors truly want to make a return on their investment.

In the latest Wealth Insights report, Barclays has explored the financial and emotional motivations for holding treasure assets. A survey of over 2,000 wealthy individuals worldwide, coupled with the knowledge of a number of industry experts, suggests that despite the appeal of tangible assets at a time of widespread financial uncertainty, treasure assets should primarily be held for the pleasure it brings, rather than any potential financial benefits.

Within the North East, the report reveals that high net worth individuals hold on average 4% of their total net worth in treasure assets. Precious jewellery, fine art and antiques are the most popular types of treasure held globally and in the UK, whilst in the North East wine also makes it into the top three most popular treasure assets. Interestingly, 45% of high net worth individuals in the area currently own a wine collection.

The North East is also home to the highest amount of stamp collectors, with one in three (33%) having owned a collection in the last five years - more than double the amount for Londoners (14%).

But is this commitment to the practice of investing in collectibles driven more by emotional than financial motivations? The report reveals that only a tenth of treasure assets in the UK are held purely for the financial benefits they bring. Emotional ties to the assets themselves are thus shown to be significant in driving individuals to build collectibles into their portfolios.

These emotional ties that benefit collectors can come in many forms; in the UK, over 69% of treasure assets are held purely for enjoyment, whilst 37% of treasure is held because it is part of the collector’s heritage or culture.

Other emotional factors motivating the purchase of treasure assets include an enjoyment of sharing them with friends and a desire to show off. However, the North is the second least likely region (14%) to want to ‘show off’ its treasures. Just 15% of respondents in the region believe they have a duty to share their valuable possessions for the good of society – for instance, by displaying them to the public - half of the national average of 30%.

A large part of what we do at Barclays is helping investors understand the emotions and risks behind decisions. When significant emotional motivations exist for holding treasure assets, the utility derived from owning the piece may outweigh any financial perils.

However, for individuals who invest in collectibles for primarily financial reasons, the reasoning rarely stacks up. Investing in treasure assets is generally risky, with assets often laborious and expensive to sell and values can be volatile. Transaction costs at auction houses tend to be high, especially when buying, whilst insurance and storage of assets can also be expensive, and authenticity must be constantly and vigilantly considered.

Because of such risks, it is important for investors to distinguish between the collectibles held for enjoyment and social reasons, to those that they consider as solid financial investments. As we tell our clients, treasure assets may, if you’re lucky or very knowledgeable, give you a financial return, but buy something you enjoy and it will always give you an emotional return.

This was posted in Bdaily's Members' News section by Richard Clark .