Over the past year or so, I invested a lot of time in understanding the state of the collectibles market (also known as alternative assets, treasure assets, and tangibles), so I thought I'd share some highlights for those who are approaching it anew.
First, the space encompasses quite a variety of tangible assets. Some are obvious - precious metals, classic automobiles, and fine art. Some are less obvious (at least they were to me) such as wine and furniture. Here's an approximate breakdown of the overall market by asset type.
This becomes even more interesting when you realize that some people have 50% or more of their personal net worth in collectibles!
Yet these intangible assets are highly illiquid, which means those who hold the assets can be in a precarious position when they need liquidity.
Traditional banks aren't terribly enthusiastic about collectibles – here are two excerpts from a recent report by Brad Davidson of SparData:
90% of banks seem to have agreed to hold customers’ illiquid assets not because they wanted to but because they felt forced to in order to win the competition for their liquid assets [..] surveyed institutions seem to view illiquid assets as a problem to be avoided, not as an opportunity to provide valuable services to their affluent customers [..] banks surveyed indicated they are willing to hold collectibles for their customers on a short-term basis.. Most assets can be held without much effort in the bank’s vault but some pose unique issues (e.g. car collections, bull semen, live turtles, etc.)
So, for the most part you'll have a very hard time pulling cash out of them unless you want to sell. And selling can be expensive, especially if you're in a hurry.
New approaches are emerging for the space that help holders of treasure assets access liquidity without selling the asset. Essentially the owner offers a minority stake in the asset, which is broken up into small pieces that the average investor can buy. At Acquicent, we are enabling this for the classic car market initially, with plans to move into fine art soon.
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