“Passion investments” can sound like an oxymoron: What do feelings have to do with optimal returns? Yet, from art and cars to StockX, collectibles are a fixture in rich people’s portfolios.
Not wanting to put all eggs in one basket is not a new impulse. But while it is easily forgotten in good times, a recession is a great recipe to put diversification back on the agenda. In recent months, this has created tailwinds for alternative investments, also known as “alts.”
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Not all alts can be described as passion investments; I doubt anyone feels very passionate about private equity funds or debt, for instance. But the category also includes assets that overlap with hobbies and collectibles, such as wines, spirits, handbags and watches.
In sharp contrast with retail investors overall, those who invested in these categories were in for strong returns last year: “Watches and wine led the Knight Frank Luxury Investment Index results Q4 2021 to its strongest annual performance since 2018,” the property consultancy firm reported.
Concomitantly, the number of investors dabbling in these categories is also growing.
“There has been a new wave of investment money coming into the wine market, some of it led by macro factors, such as inflation worries — with wine being seen as a hedge — but also more localized factors such as supply shortages due to weather conditions, particularly frost, and supply chain issues,” Miles Davis from wine collection management platform Wine Owners told Knight Frank in 2021.
Still, investing in physical assets remains cumbersome and opaque for laymen, and that’s where a new wave of startups is hoping to help. Let’s explore.
Making wine investing accessible
Vint is one of the startups hoping to turn wine and spirits into a mainstream asset class. Montage Ventures led Vint’s $5 million seed fundraising round, and its general partner, Matt Murphy, is bullish about the company’s mission.
“Wine and spirits have traditionally been available as investments only to a limited group, largely due to a lack of awareness and accessibility,” Murphy said. “Vint is removing the barriers to entry that have held back wine and spirits from being owned in more investor portfolios.”
The CEO of one of Vint’s main competitors, Vinovest, thinks that curation is a key factor in making wine investing more accessible. “If I gave someone — even someone who likes to drink wine — a selection of 50 wines to invest in, they would have no idea or they would be clouded by what they like to drink,” Anthony Zhang said in a 2021 episode of the Alt Goes Mainstream podcast.
But even if you knew which wine varietals to pick, not using a platform like Vint would be more expensive, Vint CEO Nick King told TechCrunch. “If you do it yourself, you’re gonna pay more for the assets, pay more for storage and pay more when you go to sell.”
A tradeoff compared to DIY is that the wine you invest in will rarely sit in your cellar. In Vint’s case, you typically don’t even own a bottle — that would be too pricey. What you own is a fraction of a collection — say, three bottles of Domaine de la Romanée-Conti 2018 worth $100,000.
Then again, perhaps wine storage is better left to professionals. Listening to an interview with iDealwine co-founder Angélique de Lencquesaing, I learned that Chinese buyers love pristine labels and that these are best preserved with clingfilm. Podcast host and entrepreneur Matthieu Stefani didn’t know either — and found out from her that one of his best bottles would suffer a steep discount because of this.
In wine and elsewhere, we often don’t know what we don’t know. Since the rise of wine and spirits as an asset class is partly driven by investors’ so-called flight to safety, this makes me wonder how much of this trust is warranted.
Warranting trust
Do people tend to overestimate how much they know about wine? Maybe, but it is also true that they have a basic understanding of not just the product, but also offer and demand. Says King: “I think where it really resonates with people is the underlying economics — the fact that it is a scarce asset, that the supply is always decreasing [ … ] and that wine ages and gets better over time.”
Vint can then add a second level of education, such as explaining that the age-value correlation is even stronger for champagne. This is also an argument in favor of passion investments: That it is a way to learn more about one’s area of interest.
But it is not just about wine that novice investors can learn more; they can also up their game as investors. King thinks of Vint as a fintech company, and most of the partnerships the startup forged are in this sector — for instance, with Alto, a platform that lets Americans self-direct their individual retirement account (IRA).
One of King’s points of pride is that Vint received U.S. Securities and Exchange Commission qualification in 2021. Likewise, French wine tech company U’Wine sought and obtained a seal of approval from AMF, the authority that regulates the French financial marketplace.
“People are looking for safety right now and there’s a premium applied to trust. So I’m really happy that we spent eight months going back and forth with regulators setting up a structure — because obviously, we’ve seen what happens with unregulated exchanges in recent times,” King said.
In the U.S., Regulation A of public offerings as part of the JOBS Act has created tailwinds for alts. At the same time, startups are working on removing barriers that previously prevented more people from investing in the kind of assets they may have wished to own.
“Technology innovation is leading to financialization of passion assets,” said Alt Goes Mainstream creator Michael Sidgmore, whom I had interviewed a few weeks ago. “Passion assets will have to undergo a market structure evolution where transparency, efficiency, price discovery and custody of assets are improved,” he added, citing Vinovest and Vint as two examples that this process is starting.
Fine wine is a striking example of the value that financialization can add, because there’s friction at every turn of the market, and because the category kept on growing in value in 2022 while public markets tanked.
“Collectibles, as an asset class, tend to track closely with the growth in disposable income for the wealthy,” Vint investor and seasoned fintech executive Adam Nash told TechCrunch. This could make passion assets more weatherproof. “However, every class of collectible is different, so it is critical to focus on collectibles that have a long track record of affinity and investment,” Nash cautioned.
The more I read about passion assets, the more impressed I am with how diverse the category is, and with the growing number of startups that build the infrastructure behind it. Broadhaven Ventures, the firm where Sidgmore is a partner, invested in Alt, which focuses on sports cards, and AC Momento, which is a live auction marketplace for game-worn soccer jerseys.
The alternative asset class needs new infrastructure — who will build it?
“Passion assets are an exciting category of alts where we should expect to see continued innovation and increasing investor interest,” Sidgmore predicted. And since Public bought fractional ownership startup Otis earlier this year, I’d also like to see whether we’ll see more consolidation in the sector in 2023.
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