Financial Planning - December 2012

As interest in exotics has grown, however, specialized vehicles have multiplied. Art funds have been created as closed-end models that raise money. After the fund closes, the money is used to buy art. Investors receive their returns when the art is sold in 10 years.

An open-end model is being used by the Artist Rare Instrument Fund, which invests in rare stringed instruments. Investors must commit funds for five years. The fund’s managers will call in the money as needed when a desired musical instrument comes available.

There are fewer than 600 rare Stradivarius violins in existence, for example. Fund partner Ed Papier says investors are assured that they will get their money back because of

SaleS for fine wineS grew
213%
from 2009 to 2011
in the hong Kong/aSia marKet,
Sotheby’S SayS,

need to cash out in a hurry could have trouble doing so. This is true even when the non-liquid assets in question are highly desired bottles of wine.

The best vintages in French wines
remain a hedge against inflation and
currency fluctuations. Sotheby’s
sales figures for fine wines in the
Hong Kong/Asia market grew 213%
between 2009 to 2011 during the
has more than one way of going to
their heads. Sleigh tells a story that
underscores this risk.

RARE COIN BE TS

Marc Henn, founder of Harvest Financial Advisors of West Chester, Ohio, a multifamily wealth manage-

Disillusionment with returns on traditional financial investments is
driving more clients toward niche alternatives.

the fixed scarcity.

The Stradivarius cello owned by the late performer Bernard Greenhouse recently sold for more than the previous record price of $6 million — although an exact sale price is not known.

Average annual returns of exotic investments may not necessarily outstrip those more traditional asset classes over the long term. Between 1900 and 2000, the S&P 500 rose at an annualized 11%, according to Healey; between 1980 and 2005, he says returns on investments in fine violins rose 10%.

LIQUID ASSE TS

Of course, exotics are by nature non-liquid assets, meaning clients who

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global market rebound.

Yet risks remain for investors. Auction houses like Sotheby’s don’t give investment advice, says Robert Sleigh, head of wine for Sotheby’s Asia. “We only can advise how wine has performed in the past,” he says.

ASSE T RISKS

Serious wine investors commonly sell at least some bottles purchased in advance on the futures market once the wine is delivered, Sleigh says. But pricing can fall short of expectations. Wine investors are at the mercy of weather and vine-eating pests, as well as changes in taste among wine connoisseurs.