Future Returns: The Banking Crisis Didn’t Scare Off Alternative Investors
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Future Returns: The Banking Crisis Didn’t Scare Off Alternative Investors

By BETH PINSKER
Wed, Apr 5, 2023 8:24amGrey Clock 3 min

Investing for high-net-worth clients can be a bit of a high-wire act because they can have significant amounts of money tied up in complex alternative investments. When the panic started with the collapse of Silicon Valley Bank in March, wealth manager Tom Ruggie was relieved that none of his clients were directly invested.

“We got lucky there,” says Ruggie, a certified financial planner and author who is based in central Florida. “But when it came to Credit Suisse, we had a little bit of a scare.”

Ruggie’s firms—a family office business called Destiny Wealth Partners and a financial planning firm called Ruggie Wealth Management—did some work with the troubled financial institution on debt obligations. It turned out that all of the contracts were completed, but if Credit Suisse had failed, Ruggie and his clients would have lost a lot of money because the notes would not have been paid back.

Investors who have money in private equity, hedge funds, and direct investments in start-ups are used to taking on a lot of risk and have the financial capacity to absorb it. Ruggie points to an EY study that a third of those with assets above US$250,000 hold some alternatives in their portfolios, including 81% of ultra-high net worth clients with more than US$30 million. Scares don’t happen often, but when they do, “it’s an eye-opening event,” Ruggie says.

Still, rather than run to safety when things turn sour, Ruggie’s clients are more likely to go back and do it again. “They are usually willing to take risks when everyone else is running for cover,” he says. “When you have something come up, like the current banking crisis or the situation in 2008, a lot of people psychologically don’t do well with uncertainty. But the savvy investors, they look at it as an opportunity.”

Here’s where Ruggie says high-net-worth investors want to put their money today.

How Much Risk?

Not all high-net-worth investing is deep in alternatives. Ruggie says he divides client money into three pools: short-term money in fixed income, mid-range money in traditional equity investments like mutual funds and exchange-traded funds, and then long-term money in private investments.

To decide the ratio, he says “it’s a statistical correlation of how much money you have to how much you need and for how long. There’s no cookie-cutter answer.”

Some clients don’t put more than 10% of their net worth into non-traditional alternatives. Ruggie’s personal portfolio is pushing 40% alternatives, he says. Much of that is tied up in sports memorabilia—mostly an extensive baseball card collection—and some collectible wines, along with direct investments in companies.

Non-fungible tokens (NFTs) are a bridge too far—“I personally can’t see the advantage of investing in something like that, and never recommend for a client to do so,” Ruggie says.

As for cryptocurrency, Ruggie has dabbled, but just for the experience. “I wanted to learn,” he says. “I did quite well, but when clients came to us for advice, our guidance was that it’s off our path. Our client base is more concerned about long-term performance than the gambling aspect of investing.”

How Much Capital is Required?

Ruggie says direct investments in companies can start as low as US$25,000. These are the opportunities that are the most interesting to his clients right now, especially technology-based start-ups.

Some clients also take a step back and put their money into private-equity that then pools investments and finds companies worth investing in. Those typically require putting in at least US$250,000 and the purchaser has to be qualified, with a net worth of US$5 million net. Ruggie’s clients also invest in hedge funds, real estate, and collectibles.

Of these investments, hedge funds are the most liquid. There’s usually a lock-in period of a year, but then money can typically be withdrawn with 30-days notice.

Private equity has much less flexibility. “I tell people to basically anticipate no liquidity at all,” Ruggie says. “My mindset on private equity is that this is long-term money.”

The same goes for most direct investments in companies, which aside from the potential to sell stakes on the secondary market, there’s no ability to get cash out unless the company goes public and the shares appreciate.

The Potential Gain?

The main reason for investing in alternatives is that the potential upside of these investments is unlimited.That’s what makes it worth the risk. The other reason is that many high-net-worth clients have money to put on the line.

“What is excess? It’s a correlation between what you have and what you need,” says Ruggie. “Everyone’s definition of rich is different.”

In a year like 2022, advisers like Ruggie have had to go to clients with bad news about losses for the year and say, they may have outperformed the market but still lost 10% or whatever the number. But for Ruggie, that’s a temporary situation with paper losses.

The rest of the speech goes something like this: “It’s my belief—backed up by my personal investments—that what we’re doing with alternatives is going to outperform the market with statistically less risk than the market over time. It will catch up.”



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New York Watch Auctions Record Uptick in Sales in the Face of Market Slowdown
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Luxury watch collectors showed ongoing strong demand for Patek Philippe, growing interest in modern watches and a preference for larger case sizes and leather straps at the June watch sales in New York, according to an analysis of the major auctions.

Independent and neo-vintage categories, meanwhile, experienced declines in total sales and average prices, said the report from  EveryWatch, a global online platform for watch information. Overall, the New York auctions achieved total sales of US$52.27 million, a 9.87% increase from the previous year, on the sale of 470 lots, reflecting a 37% increase in volume. Unsold rates ticked down a few points to 5.31%, according to the platform’s analysis.

EveryWatch gathered data from official auction results for sales held in New York from June 5 to 10 at Christie’s, Phillips, and Sotheby’s. Limited to watch sales exclusively, each auction’s data was reviewed and compiled for several categories, including total lots, sales and sold rates, highest prices achieved, performance against estimates, sales trends in case materials and sizes as well as dial colors, and more. The resulting analysis provides a detailed overview of market trends and performance.

The Charles Frodsham Pocket watch sold at Phillips for $433,400.

“We still see a strong thirst for rare, interesting, and exceptional watches, modern and vintage alike, despite a little slow down in the market overall,” says Paul Altieri, founder and CEO of the California-based pre-owned online watch dealer BobsWatches.com, in an email. “The results show that there is still a lot of money floating around out there in the economy looking for quality assets.”

Patek Philippe came out on top with more than US$17.68 million on the sale of 122 lots. It also claimed the top lot: Sylvester Stallone’s Patek Philippe GrandMaster Chime 6300G-010, still in the sealed factory packaging, which sold at Sotheby’s for US$5.4 million, much to the dismay of the brand’s president, Thierry Stern . The London-based industry news website WatchPro estimates the flip made the actor as much as US$2 million in just a few years.

At Christie’s, the top lot was a Richard Mille Limited Edition RM56-02 AO Tourbillon Sapphire
Richard Mille

“As we have seen before and again in the recent Sotheby’s sale, provenance can really drive prices higher than market value with regards to the Sylvester Stallone Panerai watches and his standard Patek Philippe Nautilus 5711/1a offered,” Altieri says.

Patek Philippe claimed half of the top 10 lots, while Rolex and Richard Mille claimed two each, and Philippe Dufour claimed the No. 3 slot with a 1999 Duality, which sold at Phillips for about US$2.1 million.

“In-line with EveryWatch’s observation of the market’s strong preference for strap watches, the top lot of our auction was a Philippe Dufour Duality,” says Paul Boutros, Phillips’ deputy chairman and head of watches, Americas, in an email. “The only known example with two dials and hand sets, and presented on a leather strap, it achieved a result of over US$2 million—well above its high estimate of US$1.6 million.”

In all, four watches surpassed the US$1 million mark, down from seven in 2023. At Christie’s, the top lot was a Richard Mille Limited Edition RM56-02 AO Tourbillon Sapphire, the most expensive watch sold at Christie’s in New York. That sale also saw a Richard Mille Limited Edition RM52-01 CA-FQ Tourbillon Skull Model go for US$1.26 million to an online buyer.

Rolex expert Altieri was surprised one of the brand’s timepieces did not crack the US$1 million threshold but notes that a rare Rolex Daytona 6239 in yellow gold with a “Paul Newman John Player Special” dial came close at US$952,500 in the Phillips sale.

The Crown did rank second in terms of brand clout, achieving sales of US$8.95 million with 110 lots. However, both Patek Philippe and Rolex experienced a sales decline by 8.55% and 2.46%, respectively. The independent brand Richard Mille, with US$6.71 million in sales, marked a 912% increase from the previous year with 15 lots, up from 5 lots in 2023.

The results underscored recent reports of prices falling on the secondary market for specific coveted models from Rolex, Patek Philippe, and Audemars Piguet. The summary points out that five top models produced high sales but with a fall in average prices.

The Rolex Daytona topped the list with 42 appearances, averaging US$132,053, a 41% average price decrease. Patek Philippe’s Nautilus, with two of the top five watches, made 26 appearances with an average price of US$111,198, a 26% average price decrease. Patek Philippe’s Perpetual Calendar followed with 23 appearances and a US$231,877 average price, signifying a fall of 43%, and Audemars Piguet’s Royal Oak had 22 appearances and an average price of US$105,673, a 10% decrease. The Rolex Day Date is the only watch in the top five that tracks an increase in average price, which at US$72,459 clocked a 92% increase over last year.

In terms of categories, modern watches (2005 and newer) led the market with US$30 million in total sales from 226 lots, representing a 53.54% increase in sales and a 3.78% increase in average sales price over 2023. Vintage watches (pre-1985) logged a modest 6.22% increase in total sales and an 89.89% increase in total lots to 169.

However, the average price was down across vintage, independent, and neo-vintage (1990-2005) watches. Independent brands saw sales fall 24.10% to US$8.47 million and average prices falling 42.17%, while neo-vintage watches experienced the largest decline in sales and lots, with total sales falling 44.7% to US$8.25 million, and average sales price falling 35.73% to US$111,000.

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Just 55 minutes from Sydney, make this your creative getaway located in the majestic Hawkesbury region.

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