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Soon enough, Azimut, a leading European asset manager with over €80 billion in AUMs, will add a new asset class to its menu of offerings: classic cars.
Now, classic car fund formation is nothing new. It's been tried and tried again to differing levels of success. It's often the case, though, that the efforts are standalone offerings within upstart ventures. In that regard, given the company's size, Azimut's entry feels just a bit different from the others.
The "evergreen" car fund will be structured as an open-end fund, meaning it can receive new capital contributions on an ongoing basis. This structure differs from another well-publicized offering in the space: the Klassik Fund from Hetica, an asset manager which focuses on uncorrelated alternatives. The Klassik Fund is a closed-end fund which launched with €50 million in 2021, with the expectation of a seven year term. In contrast, the Azimut fund could theoretically exist in perpetuity.
Azimut's entry into the space isn't the first time a large, traditional asset manager has pursued a collectible hard asset. In fact, you could go back decades to the British Rail Pension Fund in the 1970s for an early example. With the OPEC crisis weighing on equities, inflation soaring to historic highs, and pound sterling depreciating against key currencies, the fund made the decision to diversify into art investment. The BRPF bought £40 million in art over 6 years, reaching an allocation near 3% of the total portfolio. By 1987, with a change in fund management and a frothy art market, the fund trustees made the decision to offload the art allocation. It proved a success in the intended purpose of outstripping inflation, delivering an overall cash IRR of 11.3%, or 4% annually in real terms. While it underperformed UK equities on the whole, some works and collections did offer superior performance.
However, another reason for the unwind was the large size of the collection (thousands of works) and the immense administrative burden that came with it. While the investment merit was credible, the operation was intensive.
Of course, this was all decades ago, but some of the pitfalls of this type of investing still ring true.
There's a reason classic car investing isn't a more common pursuit. Insurance, maintenance, and storage are quite costly complications, which is a meaningful difference from traditional "store of value" investments like precious metals, to which Hetica likens car investment on its website. Speaking of cost, the cost to invest is quite handsome indeed. Both Azimut and Hetica reportedly require a €125,000 investment minimum. A term sheet for Hetica's Klassik Fund suggests an investor at that level will pay a 3% subscription fee, 0.50-0.75% in management fees, a 5.0% advisory fee, and a 30% performance fee.
Hetica is based in Switzerland, but given the allocation to Ferraris, perhaps they (and you) can pardon our Italian when we say....that's a pricey meat-a-ball. It bears repeating: car investing is an expensive and complicated pursuit.
To the extent it suits the Klassik Fund’s investment strategy, investors can also contribute classic cars directly to the fund. Such a practice mirrors what's called an "exchange fund”, a somewhat infrequently used tool in public equities that sees business owners or executives with large concentrated holdings in their company stock contribute that stock to a fund with other parties facing the same problem, thereby collectively diversifying exposure.
Azimut will focus primarily on cars worth more than $1 million, rather than excessively diversifying amongst a lower caliber of works, which would heighten administrative burden, a lesson learned decades ago by the British Rail Pension Fund. Similarly, a large number of investors writing smaller checks would also somewhat hinder the ability to conduct an efficient operation, hence the high investment minimum.
Of course, fractional platform Rally (shortened from Rally Rd) was conceived to allow for low minimum investing in classic cars. While the scope of assets on offer has widened, there have been 46 cars offered on the platform, Eight have been exited with an average return over 4% since IPO. The secondary market hasn't been as kind: on average, the cars on the platform trade at a 19% discount to their IPO price as of the end of last week. To date in 2023, the Altan Insights Fractional Car Index is up 4.2%.
Regardless of wallet size, a greater number of parties are recognizing the appreciation potential of scarce assets with dwindling supply and loyal, deep-pocketed audiences. Whether those factors can efficiently translate to success in formal investment vehicles is another question altogether. Azimut, Hetica, Rally, and others have been keen to find out.
If the answer is yes, collectible alternative asset investing might be shifting into a new gear.
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