Analysis: Watch, wine funds grapple with valuations

By Martin de Sa’Pinto and Silke Koltrowitz

ZURICH (BestGrowthStock) – Investors in a new breed of funds specializing in rare watches and vintage wine and other exotic assets may be in for a disappointment if the prospect of high returns was the only thing that hooked them in.

Several niche funds launched recently target returns as high as 15 percent as they compete for investors in a low interest-rate world, where returns on cash and government bonds are uninspiring.

But some analysts say the paper valuations of rarely traded assets like watches or violins can be hard to actually obtain in the market.

As a result, funds may be using inflated valuations that enable them to report strong paper profits and claim fat performance fees — but that may not be translated into returns for investors when they come to sell.

And investors have little reliable data to help them as many niche funds have only been launched in the last few years.

“Most of these funds are selling wishful thinking when they talk about expected returns, but with other assets looking weak, people don’t know where to put their money and may be willing to listen,” said Mark Schindler, Portfolio manager of alternative investments at Credit Suisse private banking arm Clariden Leu.

Investment adviser Michel Benveniste said interest in exotic funds has risen, partly reflecting a rebound in demand for luxury goods.

This has prompted new launches like Elite Advisor’s collectors’ watch fund, Precious Time, in October and Emotional Assets, a fund of funds set up in 2009 that focuses on art, jewelry, stamps, watches and other exotic assets.

Building a broad portfolio that can produce solid returns is a key challenge for exotic funds, analysts say.

“It is really difficult to predict how prices for collectors’ watches will develop,” said Geoffroy Ader, European Head of Watches at auction house Sotheby’s, adding that not all watches become more fashionable and some will lose value.


Rare watches may be fetching record prices at auction — a Patek Philippe watch sold for nearly $6 million in May — but fat returns for single items cannot be extrapolated, said Gregory Pons, author of watch news website

A rare watch bought at auction for 125,000 Swiss francs ($125,200) including fees may only be valued 75,000 by an expert, as auctions tended to inflate watch prices, said Pons.

The gap between a fund’s assessment of what its investments are worth and what they might fetch on the market is illustrated by Elite’s fine wines fund, Noble Crus.

In December 2009 the fund valued its 85 bottles of DRC 2005 Romanee Conti at 10,361 euros ($13,500) per bottle based on broker prices. But data from Liv-ex, an electronic market place for wine traders, showed wholesale prices were 30 percent lower.

“Valuing fine wines is necessarily complex. The key point is to have an independent valuer with a transparent methodology,” said Jack Hibberd, research manager at Liv-ex.

Michel Tamisier, managing partner of Elite, told Reuters Noble Crus would be valued independently from 2011, while valuations for Precious Time, also an Elite fund, would be based on real prices achieved at auction and through merchants.

Andrew Davidson, manager of the Vintage Wine Fund, whose wine values are based on recent auction prices and are independently verified said: “If you’re charging fees on the increase in the fund’s value, your valuation has to be pretty scientific.”

But some fund promoters say it’s not all about returns and seek to tap investors’ emotions to persuade them to part with their cash.

“You have to touch people’s soft spot by telling them: we’ll buy billionaires’ watches and look at them once or twice a year,” Pons said.

Philip Hoffman’s Fine Art Fund organizes an annual event for investors with a private showing of some of the fund’s pieces.

And the London-based Fine Violin fund lends its Stradivari and Guarneri violins to promising musicians and puts on concerts that the investors can attend.

“Investors go to the concerts and they say ‘that’s my instrument’,” said violin expert and fund founder Florian Leonhard.

(Editing by Jason Rhodes and Erica Billingham)

Analysis: Watch, wine funds grapple with valuations