From diamonds to wine, investors are flocking to luxury collectibles

When Kim Kardashian walked up the stairs to the Met Gala in New York in May wearing the crystal-embellished “naked dress” that Marilyn Monroe wore to sing happy birthday to President John F Kennedy, auction house calls went viral. poured in from an unlikely source: asset managers.

Demand for collectibles – one of the most “alternative” alternative assets – is skyrocketing as appetite for recession-proof inflation hedges grows. Wary of overvalued and volatile stocks and bored by low-yielding bonds, investors are increasingly turning to niche asset classes such as wine, baseball cards, sneakers and diamonds.

Kardashian’s sartorial display drew Wall Street’s attention to how quickly the dress – which is usually kept on display to preserve the delicate fabric – has risen in value over the past few decades. The garment gained 300% between its 1999 sale for $1.26 million and its 2016 sale for $4.8 million. The S&P 500 index gained relatively little by 138% over the same period.

The collectibles market has long been dominated by enthusiasts, says Darren Julien, the founder of auction house Julien’s, which handled the second sale of Monroe dresses. But where there is money to be made, Wall Street soon will be. And while interest from investment firms has grown slowly over the past few years, there has been a sea change over the past six months. “Now hedge funds and professional investors are carving out slices of the pie to put their money into collectibles,” says Julien.

Investment companies account for about a third of collectibles buyers, he says, a trend that is accelerating as US inflation hovers around 8.5%. 2008 was a banner year for Julien as people rushed to move their money from cash and stocks to “sustainable assets”. This fall promises to be an exceptional season.

There is precedent for collectibles like hedges. Whiskey has a compound average growth rate of 19% over the past 10 years, according to the LiveTrade Bordeaux Index trading platform. Pink diamonds offer a compound annual growth rate of over 11% and have appreciated over 300% since 2008 according to FCR research. An index that tracks baseball cards has risen 1,000% since 2021 alone.

Luxury collectibles used to be the playground of a small group of collectors or investors looking for creative places to put cash. Part of that is down to logistics: while gold bullion can be bought in increments as an inflation hedge, investors couldn’t split a diamond into stocks without destroying its value.

Today, professional investors are turning once-hoarded assets into public, diversified offerings for clients. In July, Ben Cleary, portfolio manager at Tribeca Investment Partners, helped raise $50 million for a fund that holds rare pale violet Argyle diamonds, with a minimum investment of $1 million.

The institutionalization of the asset class is also helping to lower the entry threshold, letting in everyday investors. Luxus, founded by former Blackstone veteran Dana Auslander, is trying to capture this trend by offering diamond investments to retail investors at a lower price. Although investors may not be able to afford a rare 11.7 carat yellow diamond, they will be able to own shares of it and benefit from it when it is sold. Luxus plans to IPO the $1.7 million “Golden Dahlia” diamond in early September.

The broader push towards collectibles has been catalysed, experts say, by cryptocurrency. Investment-grade wine has an average rate of return of around 10% per year, according to LiveTrade. It seemed sleepy relative to cryptocurrency – until crypto crashed earlier this year. “Crypto used to be such a far-fetched attraction that everything behind it that seemed so niche and esoteric before seems a lot more normal and a lot less scary now,” says Tom Gearing, chief executive of the platform. of wine trade Cult Wines.

Liquidity remains an issue for certain segments of the collectibles market, including, ironically, wine. Funds that pool collectible assets for retail traders are nascent, but there are glimmers of market expansion. Valt, the alternative investment startup, bundles assets such as collectibles for investors who want to own shares of Babe Ruth and Bordeaux baseball cards. Wine is growing in popularity with retailers as well as institutional traders – family offices account for almost half of the market, according to brokers.

Yet some investors seek out collectibles for a different kind of value. “We try to get people to look at the merits of the asset versus a drink,” says Matthew O’Connell, Managing Director of LiveTrade Bordeaux Index. “But I would be lying if I said that some wealthy investors don’t occasionally dip into their portfolios.”

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Elisha A. Tilghman