Classic cars as an asset class
The collector car market has evolved from a hobby made up of collectors and enthusiasts to a highprofile industry now recognised by sophisticated collectors and investors as an alternative asset class.
Aside from buying a classic car outright, fractional ownership or investment into a car fund portfolio have emerged as platforms for acquiring or sharing in a classic or collectable car and its potential proceeds.
But classic specialists are quick to caution about confusing “collecting” with “investing”, the downside of which they say can be significant. “Sometimes what you don’t know [about the car as an investment] is more important than what you do know” [about the car as an object of passion], says a car fund specialist.
Leon Strümpher, portfolio manager with Sanlam Private Wealth, says luxury items like art and classic cars are an important part of diversifying the portfolios of high-net-worth individuals (HNWIs).
“Luxury investments like art and cars have a very special place in a portfolio. They need to be looked at and taken seriously,” he says. But, he adds, if a luxury “investment” does not return something better than prime plus inflation, then it’s not an investment.
Investing in a classic car can be a bit of a ride into the unknown, so indices like HAGI and Hagerty that monitor valuation trends in the classic car world are vital for providing reliable data for would-be collectors or investors.
Better than gold?
The growth in the values of classic cars has been staggering over the past decade. Over the last 10 years, classic cars have topped the Knight Frank Luxury Investment Index posting a return of 362%, outpacing the 195% posted by gold and 82% by equities (JSE All Share Index).
Performance, though, has plummeted over the past 12 months. Still, while the Porsche marque dropped 0.1% in value in the last 12 months to May 2017, the Ferrari and Mercedes-Benz marques have grown by 1.6% and 16% respectively, according to HAGI.
Experts expect the values of special, iconic cars (perhaps 1% to 5% of the market) to continue to rise due to their finite numbers and increasing demand for them.
Car funds, like those offered by Chrome Strategies Management, invest in some of the world’s most iconic cars, relying on appreciation in value to generate returns. The minimum investment requirement of many funds − generally $100 000, €100 000 or £100 000 – is daunting for non-HNWI investors. Of more concern is the lack of transparency around many so-called car funds.
“There are platforms that call themselves funds but are not in a true sense actively managed portfolio funds,” says Tommy Roes, managing director of The Carfinders International.
Unlike countries like the UK and US, South Africa does not currently have a car fund that allows for participation by local investors. But one is in planning. In development is the TCF Private Equity fund, an opportunity for local and international investors to participate, with limited liability, in an actively managed, returns-based portfolio of collectible cars. ■
*Knight Frank Prime Central London Residential Index **Knight Frank Luxury Investment Index