近日，《Private Wealth Management》杂志刊发我院副院长朱宁教授的采访报道，对于当下投资者所热衷的投资品种，他表示，在经济形势不明朗的情况下，有形资产可能更安全和富有吸引力。

Is the main motivation for wealthy individuals' growing interest in jewellery, fine art, wine, classic cars and collectibles, profit or prestige?

It is often said that headlines can be misleading, but the many captions trumpeting fresh price records for luxury investments at auctions across the world tell a very clear story: the market for passion assets continues to grow –and quickly.

On 12 November 2013, a Francis Bacon triptych became the world’s most expensive work of art. The artist’s Three Studies of Lucian Freud went under the hammer at Christie’s in New York for $142.4m– some $22.5m more than the previous priciest piece of art, Edvard Munch’s The Scream, which was sold for $119.9m in 2012.

But fine art is not the only category of passion assets grabbing the headlines. On 13 November 2013, a diamond known as the Pink Star sold for a record $83m in Geneva. At the tail end of the summer, a Canadian classic car collector paid an auction record $27.5m for one of just ten 1967 Ferrari 275 GTB/4*s NART Spyder convertibles.

Indeed, the total value of global luxury investments has swelled to more than $362bn since 2008, increasing at an annual rate of 14.6%, according to specialist research company WealthInsight. The deepening global pool of high-net-worthindividuals has been a major factor in the growing capital allocation to passion assets, with the impact of wealth creation in emerging markets a particular feature. Estimates say the global high-net-worth population grew 9% in 2012 to some 12m worldwide, yet the value of luxury investments by the wealthy in developing countries grew at an annual rate of 22.2% from 2008 to 2012 – nearly twice the rate of growth in the developed world.

And there is unlikely to be any let up if forecasts are to be believed. WealthInsight expects the total value of luxury investments to grow at an annual rate of 10.3% from 2013 to 2017. So what is the motivation?

After all, investors are often told by experts to separate emotion from reason in their bid for consistent and successful decision making.

Scarce and tangible safe-haven assets

It is no coincidence that record prices are being achieved against a backdrop of global economic uncertainty and ultra-low interest rates. The financial crisis left many with a lingering distrust of traditional asset classes. The rise in interest in passion assets is therefore at least in part explained by investors’ desire to preserve capital and reduce portfolio volatility by diversifying. Professor Ning Zhu at the Shanghai Institute of Finance in China, agrees. “Tangible assets appear safer and more attractive during times of uncertainty,” he says. “Meanwhile, the descent of paper money in the wake of the financial crisis has motivated a great deal of investment into arts, real estate and wines.”

A market that feeds itself

In the main, financial motivation appears greatest at the more commoditised end of passion assets, such as gold, jewellery, gemstones and coins, where intrinsic value is higher and emotional variables appear limited. Earlier this year, the recently opened Singapore Diamond Exchange highlighted that “one of the key advantages of diamonds to investors is price stability and as a hedge against volatility in financial and traditional commodity markets”.

Behavioural finance also explains the demand momentum generated by positive headlines, says Raghavendra Rau, Professorof Finance at Cambridge University’s Judge Business School. He says: “Salient factors are proven to play a major role in decision making. If something is brought to the forefront of the investor’s attention, there is a much higher probability that he acts on it.
The headlines about record prices for passion assets are feeding themselves.”

Prestige and cultural influences

The irony of investors’ faith in the security of tangible assets is that the benefits of passion investments are often intangible. Perceptions about these motivations are heavily influenced by national and cultural biases, says Professor Zhu.

“Cultural differences affect attitudes towards passion investments in two senses. First, conspicuous consumption: Asians take greater pride in showing off their wealth, in their social status and in ‘standing out from the crowd’. Second, Asians also pay greater attention to tangible assets partly because of their uneven economic history and the higher rates of inflation that the region has experienced.”

The understandable prestige in owning rare, iconic and beautiful items of cultural and heritage significance is clearly a major motivation. However, some of the other behavioural drivers to purchases
are more complex. The growing interest in emerging market fine art is a case in point, says Rau.

“When a wealthy Indian individual stops buying Old Masters in favour of works by local Indian artists,” he says, “the message he is giving to his peers is not, ‘I can’t afford a Monet’, but actually ‘I have the confidence and the specialist knowledge to back this local artist’.” Richard Taffler, Professor of Finance at Warwick Business School, calls this behavioural concept ‘value expressiveness’.

Passion assets are perceived as making powerful statements about the personal values, characteristics and expertise of their owners and how they want to be seen,” he says. Such knowledge exhibitionism is clearly a growing trend in China, where an estimated 60% of high-networth individuals are building passion asset collections.

Yet, according to the China Passion Investments White Paper 2013, nearly two-thirds of China’s 2.8m dollar-millionaires are influenced by word of mouth. In just two years, the preferred luxury investments are changing order. China’s super rich may own, on average, five watches and four cars, but these assets have fallen down the pecking order as Chinese classical art and culturally important Jadeware have emerged as the preferred luxury asset of choice.

The ‘pleasure yield’

Removing the emotion from investment is arguably impossible even for professional investors. As Taffler says: “If for no other reason than that emotions are part of the evolved mental process human beings have for managing uncertainty and competition, investment activity inevitably engages feelings.”

And when it comes to passion investments, feelings can represent a significant motivation and a major part of the perceived value. Can that emotional value be separated from financial motivations and be accurately quantified? Perhaps not. But the ‘pleasure yield’ of owning the rare, emotive and beautiful is an attractive return in itself.