The future of money: Which alternative assets are worth investing in?

In this third of four round-table discussions hosted by global insurance broker Howden Private Wealth and The Peak, finance experts and passion investors exchange insights on asset class evolution.

How would you react if you woke up one morning and all bank accounts and trading platforms were gone? The ice-breaker was posed at the start of Howden Private Wealth Future-Ready session, The Future of Money: The Evolution of Asset Classes, co-hosted by The Peak.

“That wipes out all trading losses and bank loans. I might be happier!’ replied Kevin Tan, Executive Vice President of a financial and commodity firm and seasoned watch collector, with a laugh. “Jokes aside, in the financial equivalent of a zombie apocalypse, survival mode kicks in. The logical thing to do is establish how much cash or cash equivalent you have on hand, down to illiquid assets from watches and art to properties, and then plan your survival and revival.”

A colossal collapse of the financial system would return society to the days of trading physical goods and services for other goods and services, noted Nicolas Monroy, Director for Southeast Asia, Cult Wines. “But the silver lining would be that my portfolio of fine wine, as a pure commodity, would have protected a good portion of my wealth,” he added.

“The question does make one stop and think,” replied co-host Vincent Lee, Senior Vice-President and Head of Malaysia at Howden Private Wealth, who has spent more than 20 years helping clients achieve their intergenerational wealth transfer and liquidity planning goals. “People are always focused on chasing the alpha. But things can go south, things can go wrong. Defensive allocation can provide protection, and also with insurance, you are creating a forward value that’s certain.”

The transformative power of technology

Advances in technology, rapidly emerging investment vehicles, and a growing (and diverse) global investor base are behind what is considered the greatest wave of market democratisation in modern times.

“We’ve seen robo-advisors, fractionalised property investment, and crowdfunding platforms brought into reality through technology. It’s a positive trend that’s making it easier and more transparent for the masses. With the rise of cryptocurrency, NFTs, and the Metaverse powered by blockchain technology, we’ve also seen new wealth creation and value capture, whether through investment, new jobs, or even creating new businesses,” observed Belinda Lim, author of BlockLass: The can-read guide for newbies — An Intro to Blockchain and Cryptocurrencies for Ladies.

“However, technology is just a tool wielded by human beings and is fallible to human shortcomings. We have seen how misplaced trust in platforms such as [crypto lender] Celsius has also resulted in massive losses worldwide. With the aggregation of valuable assets on a single platform, there is also the risk of hacks targeted at the new fintech companies,” she added.

In 2021, Lim co-founded the advanced security-enabled wallet Avarta with a mission to simplify Web3 usage. Avarta uses facial recognition for its identity proofing and authentication service and is building a trust scoring system so that people do not have to know the person on the other end of the transaction, but can still transact safely.

People are always focused on chasing the alpha. But things can go south, things can go wrong. Defensive allocation can provide protection, and also with insurance, you are creating a forward value that’s certain - Vincent Lee, Howden Private Wealth

“The promise of fintech has always been to democratise financial services and offerings, making them more accessible,” agreed Kelvin Lee, Co-founder and CEO of alternative assets marketplace platform Fundnel, which launched South-east Asia’s first digital whisky-based token. “While I don’t have a crystal ball to the future, I do believe that the concept of money and wealth will likely be turned on its head, bringing more diverse, unique and sophisticated opportunities.”

Launched in 2016, Fundnel has listed real assets including art, wines, and property. Its investor community has also participated in private equity deals like SpaceX, Gojek, Grab, Bukalapak and top-tier funds from leading private equity and venture capital firms.

Lee and his team are also increasingly focused on helping early-stage investors, founders and founding staff monetise their holdings. “In this way, we facilitate the start of a virtuous cycle of bringing capital that would otherwise be locked up, to support a new generation of start-ups. At the same time, we open up opportunities for new investors to inject capital into established companies, many of whom are choosing to avoid public markets.”

Related: Life beyond 120: Doctors weigh in on leading healthier, longer lives

What investors want

How exactly are the wealthy investing their money these days?

Kenneth Tan, Managing Director and Market Head at a private bank, shared insight from his work with ultra-high net worth individuals to build their financial legacies. “Our clients are typically diversified and plan their asset allocation percentages with advice from their bankers or their family office professionals.”

For Asian clients, properties make up the majority of their total net worth, whereas international clients tend to invest in discretionary mandates with an Asian tilt “because they view us as specialists in Asia”. Private equity investments are also on the rise. The next generation of investors, however, views asset classes differently, preferring virtual currencies and NFTs, according to Tan.

He keeps his own portfolio healthy by diversifying. “Due to my work in a bank, I try to diversify my risks away from financial markets. Thus, my weighting in financial assets — such as yield play products and ETFs — is smaller than in non-financial assets.” The long-time wine enthusiast’s focus investments in the
latter have included properties and alternative investments related to fine wine and cognac.

Due to their low correlation with other financial assets, luxury collectibles such as wine, art, watches, and handbags offer significant diversification benefits.

Several collectibles had a remarkable year in 2021, thanks to the re-opening of economies, according to the latest Credit Suisse Collectibles Report. Even in 2022, despite the uncertainties and macroeconomic and geopolitical shifts, collectibles had a strong start.

A fine wine portfolio is “compelling as a long-term savings mechanism” and can produce equity-like returns with one-third the volatility, according to Monroy of Cult Wines, which manages $440 million in assets and tailors wine portfolios for investors. He explained that while the first wave was older, knowledgeable about wine, and equipped with ample resources, Gen X, millennials, and even Gen Z were increasingly entering the space thanks to technology-enabled data aggregation and analysis and the establishment of trusted marketplaces.

As with financial assets, collectibles differ from one another. Watches and jewellery are classic stores of value with lower volatility than wine, while fine art is more of a capital growth asset with higher average returns but also higher volatility.

Investment or passion first?

“There are many forms of stores of value, but watches fall into the fun category, unlike equities or metals. You can wear them, show them off, become a social media personality and most certainly meet fellow collectors with the same zeal. They are also relatively easy to maintain and store, unlike other ‘funs’ like wine or cars,” shared Kevin Tan, who has a following on Instagram and is a moderator of popular watch community WatchProSite.

“As an asset class, watches can be a great purchase if you buy cheaply, for example at a discount, or if you buy blue chip watches like Rolex and Patek Philippe with a known demand exceeding supply, or if you make an expert guess on the next hot watch. The first two are defensive plays, and the last is speculative.”
Having started when he was just 16, Tan’s vast collection of timepieces has grown to around 1,000 and includes flea market finds to covetable timepieces with sentimental value to him, such as a Jaeger-LeCoultre Reverso Gyrotourbillon and an A. Lange & Söhne Datograph. “I collect whatever catches my fancy and is horologically relevant or significant,” he shared.

Needless to say, art will always hold value, and it has since as early as the Hellenistic period. - Stéphane Le Pelletier, Opera Gallery

When it comes to fine art, collectors are still going for timeless blue chip investments and big names such as Marc Chagall, Bernard Buffet, and Keith Haring. At the same time, there is increasing interest in emerging and younger artists, observed Stéphane Le Pelletier, Asia Pacific Director of Opera Gallery, which has 13 galleries worldwide.

“The demographic of collectors has shifted slightly, as younger collectors are becoming more active in the art market these days. Their taste in art is shaped by the pieces that capture the spirit of the generation. Contemporary art has endless potential to do that — proven by record-breaking sales.”

Le Pelletier, himself a collector, advised that any investment in art should stem from appreciation and passion. “We believe financial value is secondary to personal value, even if the two inevitably overlap. Once you have a piece of art that you cannot live without, you understand that the return on investment and appreciation in market value are just bonuses, the icing on the cake.“

“Needless to say, art will always hold value, and it has since as early as the Hellenistic period.”

Bringing the session to a close, Howden Private Wealth Vincent Lee added: “As it is with technology, the assets people hold and acquire evolve over time. We are also seeing more HNW clients including insurance solutions as part of their overall asset allocation. They like them because of their non-market correlation nature, ability to create a defined forward value and accumulation of cash value build up with multiplier effect. It’s a simple and effective strategy to create and preserve wealth for their next generation and beyond.”

Preserving Wealth, Protecting Legacies

An asset class with low correlations to the markets, life insurance remains a popular financial tool amongst affluent investors looking to diversify their portfolio and build financial resilience during market volatility.

Howden Private Wealth can help HNW individuals and families preserve their wealth and protect their legacies by providing the necessary liquidity with the use of globally-sourced insurance solutions so they can better prepare for the future.

Article by Lauren Tan, Editor-in-Chief, The Peak Magazine