Classic cars are gaining attention due to their nearly 500 percent returns over the past decade, outpacing art and wine by more than 100 percent, as reported by the Knight Frank Luxury Investment Index.
“Passion funds,” mostly known for investments in art portfolios, have been around since about 2006, with classic car passion funds coming on the scene about five years ago, said Enrique Liberman, partner, Bowles Liberman & Newman. Liberman is a transactional attorney who specializes in luxury asset investment funds. “Ten years ago, classic cars were looked at as collectibles, but now people are recognizing them as an asset class,” he said.
He has been seeing a lot of interest in new car funds lately, with many inquiries coming from first-time fund managers, typically classic car collectors or dealers. Clarifying the term “fund,” Liberman explained that “a fund has a person or group that comes up with a structure and terms and offers it, whereas an investment collective is when a group of people come together and decide collectively on the [investment] terms.”
Under the radar
Generally, car funds keep a very low profile, Liberman said, raising funds through their own connections and registered broker-dealers. “When you have a fund, you need to be very careful of what can and cannot be said,” he explained, referring to regulatory restrictions. “You can’t solicit on a website.” Another reason for staying under the radar is to not alert the marketplace.
“Dealers will want top dollar if you advertise what you have in your collections, and buyers prefer to buy from other collectors, not investors or funds,” he said. Fund investment approaches vary widely, Liberman said. Strategies include a focus on make, such as Ferrari, or on restoration or geographic arbitrage (buying in certain countries and selling elsewhere for a higher price). The Rolling Art Fund 1, by Rolling Art Advisors, is a private equity fund, now fundraising for $50 million to $100 million, focused on limited-production classic sports cars. It is only for accredited investors.
“In my decades of doing this, I’ve never seen collector cars recognized so universally as alternate assets and works of art.”
“A few years ago, we noticed the growth in demand and interest in [investing in] art,” said co-founder Joshua Wekstein, an attorney with a longstanding interest in historic sports cars. “We view these cars as art, and we want to have museum-quality pieces in our portfolio.”
Rolling Art Advisors co-founder Marc Sharinn is an attorney with investment funds experience who collects classic sports cars. To establish proof of concept, the founders started a test portfolio of five cars in 2013. Their strategy is to choose cars of limited production (under 500 units), with engineering, mechanical and/or historical significance; a handmade craftsman component; and provenance (documented history).
In less than three years, the overall value has increased more than 100 percent, Wekstein said.
Another private placement fund now in fundraising is Chrome Strategies Investments, managed by Chrome Strategies Management. Co-founder and fund manager Steve Linden is a well-known vintage auto appraiser, broker and author who has specialized in the classic car market for 30 years. His fund’s strategy is to look at specific auto nuances and attributes that other collectors and investors are overlooking.
“I’ve seen trends come and go, and we don’t want to focus on one particular marque,” he said.
“In my decades of doing this, I’ve never seen collector cars recognized so universally as alternate assets and works of art,” Linden said, explaining why the time is right for this type of investment vehicle. “We are seeing record prices set at major auctions and a record-setting run-up in values, with cars going to every imaginable point across the globe.”
In the last three to five years, the volume of global purchases and shipments has exploded, he said, driven by new investors, as opposed to casual collectors.
“I’m getting a lot of inquiries from investors, and I saw a need to offer and develop a diversified portfolio product,” Linden added. “I often tell people, ‘If you think you can invest in one car, that’s gambling. It’s like buying just one stock.'”
— By Deborah Nason, special to CNBC.com