Passion investment fine wine delivers benefits to love!

Your passion could be one of your most valuable assets. Collectables such as fine wine, art, and watches are delivering benefits you will love!

What are passion assets?

Quite simply ‘passion assets’ are those investments driven by emotional interest. The most valuable are recognised as being ‘best in class’, are aspirational and provoke such a passionate following, they become highly collectable. Where demand is sufficient to create a valuable secondary market, these assets can deliver significant returns.

Passion assets with global secondary markets are:

• Fine wine
• Rare pre-owned watches
• Art
• Classic and super cars
• Jewellery 
• Coins
• Stamps
• Antique furniture
• China
• Whisky

The Wealth Manager's view on Passion Investments

Knight Frank, one of the key commentators on the luxury investment trends of global Ultra High Net Worth Investors (UHNWIs), revealed in their Annual Wealth Report 2022 that fine wine was the top performing passion asset, along with watches, that year. Knight Frank’s fine wine data source recorded average growth of 16% in 2021, which exceeded the luxury investments’ average 12-month return of 9% (Knight Frank Luxury Investment Index, KFLII).

Knight Frank’s Top five passion assets in 2022:

Source: Knight Frank Wealth Report 2022, Data to Q4, 2021

Knight Frank’s 2023 Attitudes Survey, published in January, revealed that fine wine is set to be one of the top three most sought-after investment of passion in 2023, with 39% of UHNWIs looking to invest in wine this year. Art and rare watches are the two most owned luxury collectables, but these assets do not benefit from the liquidity and price transparency of the fine wine secondary market. 

The benefits of investing in your passion

• You love it!
• Tangible ‘real’ asset
• Inflation hedge
• Growth in value
• Profits may be exempt from Capital Gains Tax – fine wine
• Can be used for estate planning and wealth transfer

Changing trends in passionate purchases

Art collectors changed the way they invested in their passion in 2021 - 2022 as growth was linked to the surge in Nonfungible Tokens (NFTs). According to Christies 75% of art investors were new collectors with an average age of 42 in that period. The arrival of NFTs and cryptocurrencies disrupted the market and the world’s main auction houses sold £169M of NFT or crypto art in 2022. However, the crypto-market crash in 2022 wiped significant value from art and watches where the digital take-up was more advanced.

Top passion investments in 2022

Rarity drives value in passion assets

Investors following their ‘passion’ are generally looking for the unique or extremely scarce ‘limited editions’. For those more driven by the head than the heart, there’s good logic in this.

Investing in Art

Established Art continues to deliver strong returns however, auctions of less well-known artists have struggled to achieve pre-sale estimates as the market became more tentative in 2022.

The Art collection sale of Microsoft co-founder, Paul Allen in May 2022 raised a staggering US$1.6bn. The headline piece, Warhol’s depiction of Marilyn Munroe, sold for US$195M making it the most valuable artwork from the 20th Century.

The Paul Allen sale also included:

• Georges Seurat’s Les Poseurs Ensemble - US$149.24M
• Cezanne’s ‘La Montagne Sainte-Victoire - US$137.8M
• Van Gogh’s “Verger avec Cypres” - US$117.2M
• Gaugin’s ‘Maternité II’ - US$105.7M
• Klints’ ‘Birch Forest’ - US$104.6M

A few valuable collection sales led to a record-breaking year for art at the top level, but less established artists saw their prices slow.

Investing in Watches

The secondary market in pre-owned watches is on the up and is forecast to surpass the primary market in 2023. Last year, pre-owned watch sales grew by 20% to US$27bn and top performers achieved price tags in their millions. Boosted by this market strength, Rolex launched their Pre-owned Programme of certified watches in Q4 2022.

Top watch investments in 2022

• Patek-Philippe Gobbi Milano signed Ref 2499 - US$7,724,346.
• George Daniels Spring Case Tourbillon - US$4,092,075
• Richard Mille RM 56-01 - US$3,661,973
• Rolex ‘Paul Newman’ Daytona - US$3,421,169.

Of the top ten most valuable watches sold in 2022, five were created by Patek-Philippe, whose excellent marketing claims that the current owner is simply the custodian for the next generation. Patek and Rolex are generally the highest priced brands and now Richard Mille, F.P Journe, George Daniel and Audemar Piguet have joined the top twenty.

Growth slowed in the second half of 2022 as the market crash in crypto-currencies impacted values causing a dip in prices.

Investing in Cars

Classic and super cars have had a bumpy ride over recent years but there has still been strong individual highlight sales of extremely rare motors. The current world’s most valuable car was sold in Germany in May 2022 – the Mercedes 300SLR Uhlenhaut Coupe for £115M.

A few collections came to market in 2022 which helped drive interest and values. Sotheby’s The Gran Turismo Collection in November was a highlight, featuring 19 of the most collectable modern classic super cars. Six of the Ferrari halo set of 288 GTO, F40, F50, Enzo and LaFerrari raised £20million for a well-known collector.

Celebrity association does create a premium for passion assets and Hagerty have created a Power List rating the value of cars pre-owned by famous names.

Hagerty Power List 2022 – Top 5 names adding a premium to cars

• James Bond – 449%
• Paul Walker – 331%
• Elvis Presley – 229%
• Steve McQueen – 160%
• Elton John – 115%

There was a 12% increase in auction sales of classic cars in 2022 raising £303M, compared to 2021’s £270M, however the general trend has seen a drift in prices over recent years and prices declined in Q4 last year.

Investing in Whisky

Still a very new secondary market, Sothebys and Zachys reported record spirits auction sales in 2022, increasing from a total US$22M to US$29M. Top names, Macallan and Springbank saw their prices rise 20% and 42% respectively last year. Zachys’ record whisky sale in 2022 was a single bottle of Suntory, Yamazaki 55-Year Old Japanese single malt at US$398,400.

The market is still embryonic, with very little liquidity and a lack of transparency in pricing with variable prices at auction. Confidence in pricing and valuations is starting to improve as a growing number of the top wine merchants record whisky transactions on platforms such as Liv-ex. Investors should also ensure they deal with reputable suppliers who can ensure excellent provenance as counterfeit concerns are an issue.

Fine wine – the most liquid passion investment

Literally, and the top performing passion asset in 2021 - 2022! The secondary market in fine wine is well-established and efficient with excellent access, price transparency and the ability to exit when you want. The fine wine market is not reliant on auctions and private sales and the successful evolution of fine wine’s secondary market is largely due to Liv-ex – the fine wine market’s global stock exchange.

Liv-ex hit a new high in scale at the start of 2023 as the exchange recorded £70million of live offers in the secondary market in January. In addition, the increased sales levels in top auction houses such as Sotheby’s, which recorded a total US$150M fine wine auction sales in 2022, is a further indicator of the growth in this rewarding market.

Fine wine asset performance

Fine wine delivers stability and growth and the ability to hedge inflation. Burgundy and Champagne were the key regional drivers of wine investments in 2022 with average growth of 26.7% and 18.7% in the year. Top performing brand by price, Burgundy’s Arnoux Lachaux, recorded an average price growth of 487.2% across all their wines. Investment wines have delivered better returns than equities and other ‘passion’ assets throughout the pandemic and Ukraine war so far.

Top wine investment brands by price performance in 2022

Source: Liv-ex Power 100 Report, 2022

Across the board, tangible assets such as property, art, watches and wine saw a slowdown in growth at the end of 2022, which has continued at the start of 2023. Buyers are responding to the macro-economic challenges of multiple interest rate rises and still high levels of inflation.

Our thoughts on Passion Investments in 2023

Passion assets generally perform differently to equities and financial instruments and are valuable diversification tools. They can preserve wealth during high inflation conditions and generally offer stability, long term growth and ‘real’ value as tangible assets. Fine wine is also classified as a ‘Wasting Asset’ by HMRC and profits are therefore generally exempt from CGT. These are benefits investors should plan to build into a diversified and robust portfolio. Ultimately, if you can combine value growth, stability and tax efficiency with something you love – why wouldn’t you?

For more information on the current market conditions and opportunities, contact our expert team on 0203 384 2262.