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9 July 2013

Alternative investments: cars

Investing in vintage cars is like investing in horses. It requires patience, passion and interest in the sheer beauty of the asset.

Author: Marianne Abib-Pech, venture capitalist and writer

By the time you read these lines, summer will have probably arrived in London. Or you would be enjoying a well deserved break in the likes of Ibiza, Positano, Saint Tropez, or the beaches of Thailand and Bali for our Asian-based friends. Your eyes will be browsing through lush natural beauty and your mind will be ready to be introduced to another type of beauty – vintage cars.

I spoke to industry experts ranging from Dietrich Hatlapa, keen collector and founder of Historical Automobile Group International, as well as Filippo Pignatti Morano, managing director of the Classic Car Fund, but here I can present only the quintessence of what you need to know.

Vintage cars are the up-and-coming asset class. Investors like to spend on a physical asset with an intrinsic value, and this is the trend that has brought wine and art to the fore of the investment scene. It is also particularly attractive from a tax perspective – exemption from capital gains tax.

Vintage cars boast much healthier returns than traditional equity. In the past year certain segments of collectable cars have reported returns as high as 20%, when gold was yielding only 11%.

Similar to wine and its Liv-ex wine stock exchange, classic cars benefit from their own index – the Historic Automobile Group Index (Hagi), which measures the global market for rare collectors cars. Providing detailed analysis of manufacturers and models, it caters to the need for greater information and transparency about supply and demand, and valuation in this asset class. Supply constraints and growing demand are also a factor.

As a parallel to memorabilia, demographics play an important role in the dynamics of the vintage car market. Babyboomers with high disposable income are particularly nostalgic about their youth and often want to buy the car they dreamed off when they were young, driving higher activity in the market, as is the growing interest of Asian buyers. If this has revved your interest engine, these are the critical steps to take.

Do your research: Like any alternative asset class, investing in vintage cars requires a solid knowledge. Invest in history books about cars and the car industry. Fifty Cars that Changed the World, Real Racer Formula One, or British Auto Legends are good starting points. Familiarise yourself with different models and styles. The most entertaining way is to attend some of the classic car shows such as Fairfiled County Concours d’Elégance, or the Classic Motor Car show in Birmingham. Review auction details to assess trends and up-and-coming brands and models. The Classic Car Auction book by Historica Selecta is a great source of knowledge for a beginner.

Build your network: Similarly to watches, the vintage car market is community-driven with various layers. Establish strong relationships with dealers, auction houses and collectors to get a sense of the codes and behaviour. Complement this network with technicians and experts. They will prove useful for either maintenance, assessment or repairing your assets.

Maximise your chances of substantial return by paying attention to:

l Rarity: This can be based on numbers of models or technological sophistication. The Mercedes 300 SL is a great example – best known for its distinctive gull wing doors, only 1,200 were produced and it was the first fuel-injection engine for consumers.

l Condition: Just like investing in fashion, condition does not necessarily mean pristine, but as close as you can get. Look out for repairs that might have happened along the way, which is why your network of mechanics may become both valuable and handy. So if you come across a 1965 Exner Bugatti but the transmission has been replaced in 1995, the value is already tainted.

l Pedigree: This has an interesting meaning in this asset class. It includes a history of ownership and use over the years, and, for the most collectable cars, in which race they participated and how they performed, Mile Miglia and Le Mans being the most prestigious. Who drove the car can also be a huge factor in valuation – the Ferrari 250 GTO build for racing legend Sir Stirling Moss sold for a record £23m ($35m) last year.

And off to the finishing line – investing in vintage cars is like investing in horses. It requires patience, passion and interest in the sheer beauty of the asset. Enjoy your holiday.

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