Niche markets – areas of investment outside the financial mainstream – have caught many an investor’s eye, a prime example being hedge funds when they took off in the 1980s. With the promise of positive return however the market moves, thereby introducing welcome decorrelation into investment portfolios, they successfully exploited niche markets thanks to original strategies. So original and so successful in fact that they have become widespread. There are now more than nine thousand hedge funds which globally manage some two trillion dollars.
Such a level of interest indicates the gains to be made… provided investors hone in on these promising assets ahead of the crowd, when yields are still high. Investment companies are among those to have turned their attention to markets which had always been the preserve of collectors and connoisseurs, not least because of the specialist knowledge they require. Knowledge not everyone is willing to share. Art and more recently fine wines belong to this new hunting ground. Now watches are the latest niche market to bring investors and collectors together. In early 2011, Elite Advisers, a Luxembourg-based investment firm, launched Precious Time, the first investment fund dedicated to timepieces.
Investing in passion
“In order to meet our investors’ expectations, we launched the bold and innovative concept of Passion Investment® in 2007,” explain Miriam Mascherin and Michel Tamisier, co-founders of Elite Advisers. “We started from a simple observation: investors no longer have any real connection with their investments. Today’s products are increasingly technical, complicated and impersonal. Investors now tend to look for diversification and prefer solutions that offer tangibility and hold a personal interest. We therefore designed a product that moves away from these ‘traditional’ investments and market fluctuations, and consequent uncertainty, to which they are subject. We decided to offer our passionate investors an opportunity to invest in new asset classes, in specific niche investment themes corresponding much more closely to their desire for diversification and non-correlation. The idea is to put some excitement back into investing and to recreate the link between investor and product.”
Elite Advisers has identified investment opportunities in fine wines, diamonds and precious stones, manuscripts, works of art, watches and vintage cars. To date, the company has moved into three of these areas, namely fine wines, precious jewels and collectible watches with three dedicated investment vehicles, respectively Nobles Crus, Divine Jewels and Precious Time. “The whole interest of the vintage watch market is that it’s relatively young, having originated some thirty years ago in the 1980s,” comments Alfredo Paramico, Precious Time fund manager and himself a renowned collector. “Also, catalogues and extensive research provide an accurate indication of how many vintage pieces were made over the decades, the answer being not very many, just a few thousand truly worthwhile ones. Supply is therefore limited whereas we’re seeing demand increase worldwide. For example, Asian collectors who used to focus on contemporary watches are beginning to buy vintage timepieces. I know these people very well and they want nothing but the best. It’s economic logic that this kind of supply-demand imbalance will support the market over the long term.”
A winning investment
Alfredo Paramico goes on to compare two closely-related worlds, both of which arose from the technological advances of the twentieth century, namely watches and cars. Both have their references in terms of excellence. In the fund manager’s view, these are embodied by Ferrari and Patek Philippe, whose respective histories are studded with legendary products. Between 1962 and 1964, 39 Ferrari GTOs rolled off the production lines in Maranello. This mythical car is currently valued at some twenty million euros. Between 1941 and 1954, Patek Philippe produced 281 first series perpetual calendar chronographs in yellow gold. Just four of this famous Ref. 1518 were made in steel, in response to restrictions on supplies of gold during the war. Were one of these four timepieces to come to market today, it would probably fetch in the region of five million euros.
For Alfredo Paramico, this is proof of the potential gain in value of a timepiece such as this, promising a bright future for vintage watches to match an already auspicious past. The fund quotes two examples: “The passionate investor who purchased a steel Patek Philippe Ref. 530 chronograph twenty years ago saw it achieve a sale price of EUR 890,000 at a Christie’s auction in Geneva, representing an average annualised return of over 20%. The same applies to the happy owner of a Rolex 6234 chronograph which, achieving a sale price of EUR 180,000 in 2008 – twenty years after the original purchase – posted an average annual return in excess of 19%.