Investor Warren Buffet famously advised, “Be greedy when people are fearful, and fearful when people are greedy.” Many investors say the safest and most potentially profitable assets to buy are the ones that nobody likes. This is a mistake. Classic cars are negatively correlated to downward moves in the major indexes, as evidenced during the crisis of 2008 to 2011, so performance is driven by a contrarian view. Buy the asset everyone loves, and love the assets you own.
Classic and collectible cars have been the best-performing asset for the last two-, five- and 10-year periods (see “Return on investment,” below). This proves that they are no longer simply a novelty for the wealthy collector, but a genuine alternative investment strategy. WMG recently launched its Collectable Car Fund to exploit that fact.
The last decade for classic cars has been lucrative. Certain marques have risen four-fold in value — the rising tide has lifted almost every boat. A Ferrari 250 GTO built for Sir Stirling Moss was sold for $8.5 million in 2002; a decade later the same car was sold for a staggering $35 million. In 2014 a 250 GTO sold for just over $38 million — a record for a car sold publicly. However, in 2016 Simon Kidston, founder of the K500, sold a Ferrari 250 GTO for an undisclosed sum that reportedly exceeded that record. Talk on the street is the car sold for more than $60 million.
In 2013, RM Auctions sold a Ferrari F50 with 10,000 kilometers on the clock for €560,000 ($783,044). In early 2017, RM Auctions sold an F50 with 2,000 kilometers on the clock for €2.64 million ($3.18 million).
Historically speaking, classic cars have been a buoyant, liquid market, but one that requires discipline and deep knowledge of the underlying asset class. The pitfalls of sloppiness are deep and costly. However, it does offer resilience to wider traditional market trends. During the financial crisis of 2008 to 2011, smart money flowed into the asset class as a safe haven. The K500 Classic Car Index outperformed all investment benchmarks during the 2008 crash (see “Port in a storm,” page below).
The Trend is Your Friend
Alternatives grew to over $3.6 trillion in 2016, up 3% on 2015 according to a Financial Times report citing a major U.S. bank released in early 2017. This was a significant increase, as investors steer away from traditional long-only, value-driven investment classes. It doesn’t come as much of a surprise that the modern ultra-high net worth individuals (people with investable assets of at least $30 million, excluding personal assets) are ensuring investment portfolios include an exposure to much higher yielding alternative asset classes, including classic and collectible cars.
Until now there hasn’t been a regulated investment fund to get exposure to collectible cars, which as an asset class is up more than 400% in the last decade (see “Return on investment”). If you’re a high-net worth investor, family office or wealth manager, portfolio exposure to wine or stamps is a common investment. So, why not cars? Well, unless you have a large storage facility, a team of mechanics, detailers, insurers, transporters, security guards and a concierge to rotate the tires, investing in collectible cars can be complex and expensive.
Compare a 1982 Chateau Lafite and a Series 1 Ferrari 250 GTO; both investable assets, both valuable and likely will come with a magnificently documented history. While both are investments of passion, only one of them can truly be enjoyed without value erosion. In reality, a 50-kilometer journey in the 250 GTO isn’t going to materially change the car’s value. Enter it into a classic race or Concours event and it could even enhance it, but the ‘82 Lafite should you dare remove the cork after paying 20% tax on delivery, becomes worthless. Investments in classic cars are also free from capital gains tax.
Ferrari 250 GTO
So why have several attempts at starting a classic/collectible car fund in the UK failed? Because regulation has made it cumbersome. WMG Advisors LLP, as the appointed Fund Manager, is regulated by the Financial Conduct Authority (FCA) for investment business. Serious investors rarely commit capital to funds that are not regulated or where a team has little or no investment experience, regardless of their knowledge of the underlying asset. As an investment professional/collector of classic cars myself, the only risk to my investment should be the performance of the underlying asset. The UK’s FCA is one of the toughest regulators in the world, so it makes perfect sense for WMG to operate the car fund under its scrutiny. Second, investors will always look closely at the pedigree of the fund management team, which is where WMG’s USP becomes apparent – the team.
WMG’s Chairman Mehmet Dalman has a long career in investment banking/asset management, including managing director of Deutsch Morgan Grenfell and the only non-German Vorstand Member of Germany’s second-largest bank Commerzbank, where he founded the Securities division. It was on Commerzbank’s trading floor where Dalman and I met in the late 1990s and connected through a mutual life-long passion for exotic automobiles.
Dalman would often wander the London trading floor – then home to more than 300 trading professionals – engaging in conversation to get a feel for the mood in the market. We would spend two minutes discussing stock prices, but much longer on the market prices of the latest and greatest Ferraris, of which Dalman had already amassed an eye-watering collection, many of which he still owns today.
As a petrol-head with a 30-year track record of motorsport competing at both club and professional levels and a 20-year career as an investment banker, I would often assist Mehmet on new car specifications, helping choose color, wheel types and bespoke options. At the time I was driving a BMW, flirting with some of the most exotic car manufacturers in the world — on behalf of my boss, of course. I have built a huge automotive network in doing so, which lives on today — enter part 2 of WMG’s USP, the network.
With an aptitude for Capital Goods stocks, Automotive and Aerospace in particular, and after a 20-year career on some of London’s busiest trading floors, I quit the brokerage world due to an increasingly punitive environment ahead MiFID 2.
A meeting with Dalman at WMG’s Mayfair office in early 2016 revealed a joint aspiration to build and launch a car fund. Knowing he was a reputable collector, I went to see Mehmet to discuss a business idea — an ultra-high net worth individuals-based car concierge service that I had recently launched. It wasn’t long before my attention switched to the prospect of launching a proper investment grade car fund. I’d seen a few attempts previously, but knew what we could offer under WMG would be different; it would work.
As with any investment portfolio, diversity is key. A single car is not an investment, it’s a bet, same as a single-stock portfolio. WMG can offer the financial rewards of owning a McLaren F1 (up 1,000% since new) with none of the expenses or hassle. Classic car ownership costs can be considerable, but WMG has them comfortably controlled, thanks largely to efficiencies from the network.