At some point, the super rich reach a level of wealth where "traditional" boring investments like real estate, precious metals, equities and bonds all become a little too mundane. That’s generally when they find time for investing in things like art, collectible cars, fancy batteries and even psychedelic drugs. In fact, we recently wrote about the boom in insurance for items like whiskeys, which are also becoming popular collectible items, having recently priced at more than $1 million per bottle in auction.
But art has always been at the top of the list for those who simply have more wealth than they know what to do with. With the art market hot by virtue of the last decade of "prosperity", those selling high-priced pieces have enjoyed the benefits of a minimum price guarantee at many auctions, as there remains significant demand for these "alternative investments".
To keep business consistent, auction houses have negotiated with third parties to help guarantee bids for art that is put up for sale. And it’s great money, too: the guarantor on the sale of Leonardo da Vinci’s “Salvator Mundi” was said to make as much as $150 million, according to Bloomberg.
Not surprisingly, the super rich are also collecting rare exotic vehicles, like Ferraris. The recent sale of a 1962 250 GTO went for a whopping $48.4 million. Only 36 of that particular model were made and the vehicle was also guaranteed by an auction house. Vintage automobiles reportedly returned 280% over the past 10 years according to the Knight Frank Luxury Investment Index. That's twice what the S&P returned in the same amount of time.
And with the marijuana game officially going mainstream, investors are now also looking toward the next "big thing": psychedelic drugs, including synthetic psilocybin (the active ingredient in magic mushrooms), which has been known to help alleviate depression and disorders like PTSD. With psilocybin finally being embraced in some large scale clinical trials, including one that recently launched in Europe and North America by Compass Pathways, large financial backers are starting to step up to the plate.
Mike Novogratz, an investor in Compass Pathways and famous bitcoin investor, told Bloomberg: “It just feels like a cultural shift going on. It’s been around for thousands of years; people kind of know its side effects.”
And if that wasn’t far enough off the mainstream, the wealthy are also investing in, well... batteries. Even though right now the lithium ion battery industry has very low margins, Citigroup estimates that “very efficient manufacturers will generate higher profit margins over time”. This has drawn in the attention of investors who hope to see the $22 billion industry swell to over $100 billion within the next six or seven years.
Citigroup is planning on offering a product that tracks the performance of seven stocks exposed to battery manufacturers and the mining of raw material that is used in the production of batteries. Citi's projections estimate that the portfolio could have a 36% average return over its first year. Buyers of the product would get their initial investment back at maturity while also collecting 70% of any performance gains. David Bailin, the unit’s chief investment officer told Bloomberg: "Clients can choose when to get in but won’t be taking a significant capital risk if the note-writer pays it off at maturity".
In addition, warehouse space is also in demand, especially with companies like Amazon ravenously gobbling up distribution and storage space across the country. Steven Millstein, co-founder of Ridgewood, New Jersey-based Stro Cos that owns commercial real estate, has seen the effect firsthand:
“For me, the Amazon effect is primarily that 53 percent of sales on their platforms are from third-party sellers. Those sellers are often tenants in my buildings,” he stated.
For a warehouse owner like him, the market has been frothy enough to provide significant returns in sometimes less than 36 months. “In the last few years, we’ve purchased buildings and within a year to three years were able to get all of our equity out through a refinance. We have all of our risk off the table, and we coupon-clip going forward.”
Finally, the estates of well-known photographers, some of them connected to famous subjects like Marilyn Monroe and Elvis Presley, are also in demand. Purchases of these estates generally cost millions of dollars and include equipment like camera lenses, tripods, photographs and undeveloped film, along with the potential to license the images found within.
One purchase made by Michael Sonnenfeldt was of the estate of a photographer who is known for "discovering Marilyn Monroe". After purchasing the estate, Sonnenfeldt received thousands of undiscovered photos and prints of Marilyn Monroe from age 19 to 24, along with the intellectual property rights, book rights and negatives.
And while nobody knows what product, fad or collectible the world's mega rich will rush into next, it is clear that as long as billionaires are still scrambling from one bubble to the next and rushing to outbid each other for things that normal people would never even consider to purchase, the liquidity bubble is still raging.