Discover the diverse world of alternative investments, including art, wine, and cryptocurrency, and learn how they can enhance your portfolio. File photo.
By: Nicola Mawson
Art, sports memorabilia, shoes, handbags, watches, Beanie Babies, cryptocurrency, and stamps are just some examples of alternative investments. However, there are other options when it comes to saving, such as private equity and venture capital.
Ricardo Smith, chief investment officer at Absa Investments, explained that alternative investments can include hedge funds, structured products, private equity, venture capital, and physical assets such as property, art, classic cars, and gold. “Whether the investment is a good one depends on the nature of the underlying asset, the objectives of the investor, and how these alternative assets fit into their entire portfolio,” he said.
Smith explained that risk profiles when it comes to alternative assets differ from those of traditional investments, with a major concern being that of less liquidity. Another he cites is people could have too much of their investment locked into a particular asset.
“A way to combat this is to use an investment vehicle that allows pooling,” which makes it possible for people to group funds for a common purpose, said Smith. He added that it is also key to do due diligence as valuations on some of the more tangible assets can be subjective in nature.
Just like any other investment, such as shares, it’s vital that people do their homework, said Susie Goodman, managing executive at Strauss and Co. When it comes to art, for example, this would include researching comparative sales and purchases, whether the artist was going through a good time in their career, as well as the progeny of the article in terms of whether it is genuine – and isn’t a “too good to be true” offer on the likes of eBay.
One aspect of alternative investments that many people don’t consider, said Goodman, is the fact that it can also be socially engaging. A painting can be a talking point, while stamp or coin collectors may meet up at gatherings to mingle, she explained.
In addition, said Goodman, people often gravitate towards collecting because the artwork, for example, has a particular appeal, and they then purchase several items. She added that there may also be lucky finds via having been willed something, or a find in an attic.
People don’t just collect art, but also memorabilia such as from the 70s, or Marilyn Monroe’s shoes, said Goodman. Last year, the auctioneer sold 6 745 items at 65 auctions, including a Vladimir Tretchikoff worth R5.6 million.
Roland Peens, director and business development manager of fine wine merchants, Wine Cellar, said that – apart from being a tasty meal enhancer – wine can also be considered a good, albeit less liquid, investment. “Once your wine portfolio matures, you have the option to drink it!”
In fact, wine adds a different dimension to portfolios at a time when stocks such as the “Magnificent Seven” are skyrocketing. Pointing to research from Dr. Mesias Alfeus, a lecturer in statistics and actuarial science at Stellenbosch University, he said that wines can help derisk a portfolio as they diversify the investment.
“These favourable outcomes suggest that South African wines could serve as a valuable addition to a broader investment strategy,” said Alfeus. Peens added that given that wine is not correlated to what can be considered mainstream assets, they offer lower volatility and higher yields.
Dino Zuccollo, head of investor solutions at Westbrooke Alternative Asset Management, elaborated on a less obvious form of alternative investment: that of investing in companies in a way that provides firms with a form of debt capital. He explained that Westbrooke invests, and invests that of its clients, into businesses that require funding.
Through the asset manager, Zuccollo said, South Africans have exposure to companies in the United States and UK, which is generally difficult for local investors apart from a traditional investment such as via a fund.
An advantage Zuccollo cited included having exposure to a broader range of options than was currently available on, for example, the JSE, which has recently seen many delistings. “You can't just be in listed companies anymore, because they don't actually comprise the lion's share of the investable market anymore,” he said.
Through the offering, people can gain access to entities in sectors such as real estate, he said, Zuccollo said.
“We play the role of a bank in a quicker, better, faster way. We operate in what's called hybrid capital, which is like a little bit riskier debt,” said Zuccollo, noting that the offering was more entrepreneurial in nature.
He added that there were often businesses seeking capital that banks perceived as too small for in which to invest, which also gives South Africans the potential of a better return on their money due to the beneficial exchange rate.
To ensure that the investment is as derisked as possible, Zuccollo said “We don't want to bring client money in where there is a material risk of capital loss”.
There is, however, a longer lock-in period than traditional investments, said Zuccollo, although the returns are generally higher than, for example, that on deposit at a bank. “We pass more of the return on to the investor,” charging companies a fee, he added.
Yet, “You can so easily if you don't do your homework, land up overspending on something that has been appraised incorrectly,” said Goodman. She still cautioned, however, that it’s impossible to predict the future.
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