Alternative investment is applied to
a group of investments which usually filter outside the widely
publicised financial options. The majority of public awareness
spreads to the financially regulated markets and traditional options
such as stocks, bonds, property and other assets like private
equity, hedge funds and financial derivatives.
Within ‘alternative investment’, you have a wide range of options
such as art, fine wine, antiques, coins and stamps. These are often
referred to as tangible assets, which means that they physical
exist. The advantage of this is that even with a terrible economic
downturn the items remain to have value because they are physical
products and have a limited supply, whereas a stock can plummet and
the paper it is written on will become worthless.
There has never been a point in history where ‘rare’ high value
items have not met high demand, even in the most recent recession we
have seen an increase within markets such as fine wine investment
because there has been a lack of options within traditional
investments, including previously stable areas like property.
Literature & Data
There is a large amount of literature on traditional investments
with outlined information on alternative investment that pales in
comparison. This is largely relative to the amount of wealth
previously invested on average within portfolios worldwide. In the
Lynch / Cap Gemini Ernst & Young World Wealth Report 2003
report the data showed that high net worth individuals tended to
place 10% of their assets in alternative assets. Most recently,
following the collapse of Lehman Bros, data has suggested that this
has changed to 16% over a two year period.
During the last two years the largest emerging alternative assets
are now Fine Wine & Gold. As ‘Gold’ previously led the forefront and
spurred on much in the way of websites and literature on the data
available it is more important to look at the emerging structure of
the Fine Wine market.
The London International Vintners Exchange has created an
alternative exchange to the FTSE simply for the investment trade of
fine wine. The abbreviated term is Liv-ex. There are only a few
hundred companies registered within this circle and these companies
lead the forefront for fine wine investment, being a member of Liv-ex
is a considered a ‘seal of approval’ and currently the market is
worth $3.15 Billion.
Prior to the invention of Liv-ex.com, there was
FinancialWines.com, which was developed before the turn
of the millennium by Philip Gearing, one of the owners of the
Cult Wines Ltd
& Wineinvestment.org. The system was built by City db
engineer Arne Suggett, who previously worked developing risk
management systems for investment banks such as TMI. The essence
of these systems was to bring the large and expanding investment
market in wine, a source of trade and historical data that would
follow similar rules to the FTSE as previously mentioned. Largely
due to these systems the fine wine market is emerging as on of the
safest micro economy markets currently available.
Characteristics
Alternative investment can be primarily seen as a positive choice
for investors as they lower risk due to their characteristics and
are seen as diversification within FSA structured portfolios.
Characteristics of alternative investment choices include:
There has been low correlation
between alternative markets & the regulated financial markets
Market value of the asset can
vary between vendor/seller but systems within markets such as
‘Fine Wine’ have become exact and transparent within the last
ten years.
In some areas there may be
historical data that suggest low risk.
Investment within these areas
often requires an expert or company advisers within the
particular field, especially in terms of sourcing the product.
The cost and sale of these
tangible alternatives can be relatively high as they often fit
into the term, ‘micro economy’ and aim at the high net worth
market.
The
scrolling trades below are brought to you in association with the
London International Vintners Exchange
