A recent survey has revealed that while interest in passion assets has previously primarily centred on the potential for personal enjoyment, there has been an increased demand from a wider pool of investors to invest in alternative asset classes, with three in four (74%) stating that concerns about the economy and inflation have prompted them to consider passion assets as an asset class.
Research conducted by Fladgate LLP, a top 100 UK law firm with extensive experience in financing, leveraging, and protecting UHNW investors’ assets, of 320 sophisticated UK investors and 170 professional advisors to ultra and high net worth individuals (‘advisors’), the advisors surveyed agree that passion assets present an attractive medium to long-term investment opportunity given the current challenging markets.
There is a solid understanding from advisors on the positive attributes of investing in passion assets, as well as a belief that they are expected to deliver solid investment returns over the next five years. Over half (53%) of investors interviewed expect higher returns to be delivered from investing in passion assets, with advisors even more optimistic as 56% anticipate higher returns over the next five years. In addition, over two in five (44%) of investors, and over half of advisors (51%), consider passion assets to be a low-risk investment in these markets.
Almost 8 in 10 (79%) of advisors are knowledgeable about the asset class and almost a third (32%) consider passion assets to be a low-risk and high-return investment bet. Over half (52%) have already advised their clients about investing in passion assets, and a third (33%) are planning to advise their clients in the future. Indeed, many are currently advising their clients about investing in jewellery and watches (52%), collectables (40%), classic and supercars and NFTs (both 39%), music/sports rights (34%), art (32%), handbags (31%), wine (27%) and whisky (26%).
Additionally, almost half (48%) cited the potential for high returns, and over two in five (42%) expect passion assets to diversify their clients’ portfolios, other drivers for recommending investing in passion assets include the ability to generate a regular income (39%), tax management (38%), hedging against inflation (36%) and ESG considerations (32%).
Bridging the information gap
With the growing appetite from investors to invest in passion assets, this presents advisors with an untapped opportunity to broaden their clients’ awareness of this asset class.
Having a solid understanding of investing in passion assets is one of the key reasons given as to why investors select an advisor. Over half of investors (57%) would choose an advisor who has knowledge, insight and experience in investing passion assets.
Investors also highlighted areas they would like to receive more information about. At the top of the list was costs, with almost two in five (39%) stating they would like to understand the costs involved in investing in passion assets, and almost a third (31%) the cost of ownership. In addition to costs, over a third (36%) want to hear more about the long-term benefits, as well as the tax implications (34%), of investing in passion assets.
However, almost a quarter of advisors (23%) highlighted that a significant barrier to investing in passion assets is a lack of knowledge on their part.
Untapped opportunities
Passion assets provide the ability to leverage debt against the asset. Almost a third
(32%) of investors have already borrowed against their passion asset, and twice as many ultra-high-net-worth investors (67%) have leveraged their assets. Interestingly, nearly half of those surveyed (47%) would consider borrowing against these assets in the future.
Of the advisors interviewed, a third (33%) stated that the ability to leverage an asset is a core driver for them recommending investing in this asset class, and almost two-thirds (62%) are likely to advise their clients to borrow against their passion assets in the future.
Ella Leonard, Partner and Head of Fladgate’s Funds, Finance and Regulatory practice, commented: “Our research highlights that due to increased turbulent global macro-economic conditions appetite to invest in passion assets has increased. As a result, there is a great opportunity for advisors to tap into this growing trend and broaden awareness of passion assets and their positive attributes to their clients.
“We continue to work closely with our advisor networks and their clients to help them fully understand the legal landscape of investing in this burgeoning alternative asset class, with support only expected to increase into 2024 and beyond.”
