Investing in Luxury

Dr. Johnny Hon, Chairman and Founder, The Global Group.

One of my greatest pleasures as a businessman is the ability it gives me to turn a passion into an investment opportunity. Since setting up the Global Group a little over two decades ago, the company has grown into a diversified venture capital and angel investment firm, with wide-ranging projects spanning a myriad of specialisms, including the luxury sector.

Investing in luxury can provide the perfect intersection between business and pleasure. It allows you to enjoy your interests, while also potentially building your wealth and that of your business. I also aim to support, guide and advise others to make investments that fuel their passions both inside and outside of business.

Investing in art, fine wine and horse racing are three of my passions. But like all areas of business they are not simple and very much have their own special characteristics. Whilst, of course, they all have potential to make money, with wine probably being the easiest and most realistic option for people of relatively modest means, it is the case that more so than in many other sectors, these can be the areas where you utilise your success and your wealth to help you enjoy life. And, as ever, I also like to look for a philanthropic angle. This is especially relevant in regard to art, where patronage from an investor can really help to propel a budding artist’s career.

Given the right circumstances and resources, opportunities in the luxury sector can be profitable for your business. Butif you are coming at it from this angle, it’s important to carefully research areas likely to give you the greatest return on your investments. In China, for example, not only is the market for luxury goods rapidly increasing as the middle class grows, it is also becoming more discerning.

A joint study by Switzerland’s Art Basel international art fair and the UBS bank found that in 2016, Chinese people accounted for the largest share of the market in global sales of art and antiques at open auctions, registering 34% by value, compared with 32% for the USA and 18% for the UK.

I am both a contemporary art collector and marketplace collector myself, working with major international galleries and auction houses. I also offer art consultancy to my high-net-worth clients and family offices, and I find it fascinating how art does not in itself have an intrinsic value; Leonardo da Vinci’s Salvator Mundi for example was sold for a record £341m in November 2017 and yet a philistine could note that it consists solely of canvas and paint.

This record sale is proof that blue chip fine art is undeniably big business and a unique way of investing that can provide immense satisfaction, as well as the possibility of market appreciation. But it must be born in mind that only a fraction of the 0.001% have £341m to spend on a painting.  Most art that you might buy is likely to end up with zero commercial value to be frank. By all means buy it if you like it, but if you have other motives, then proceed with caution.

In order to successfully invest in art, you need to have the right knowledge to form an objective opinion on what you are buying. This will allow you, from a business perspective, to judge the potential value.

To gain a broader understanding of the art world, I always advise my clients to take a real interest, to visit non-commercial exhibitions, museums and galleries. If possible, go overseas to experience the incredible variety of art available in other countries. For example, Hong Kong has a thriving art scene that is growing in popularity, interest and international prestige.

If you are new to the world of art collecting, dealing directly with the artist or a representative gallery is likely to be more beneficial and personally rewarding.

Fine wine is certainly an area that can continue to be fruitful over time. Good wine improves with age is an apt saying, As with art, I collect wine for personal enjoyment and interest, but I also provide advice to high net-worth clients on opportunities. With some wines selling for as much as nearly £10,000 per bottle, it is one of the best performing asset classes and judged right it can be an extremely lucrative investment.

If you prefer outdoor pursuits, horseracing is something that my company has been investing in for a long time. I like to engage with my investment from the beginning, that is from the breeding stage. Investing in horses using this strategy is of course a long game, not a short-term play.  It is vital to breed the horses carefully and establish a strong bloodstock, relying on the best expertise.

The offspring of winning horses sell for a higher price and can continue to breed for 15 years or more. This can make it a profitable investment for the long term and hence a great asset for your business.

When investing in horse racing, in order to make the most considerable return on your investment, considering where you race your horses is also vital. We recently hired the famous French jockey Gérald Mossé and whilst for the present the UK is still our main focus, we plan to start our racing operations in Hong Kong and Singapore from next year. In both places, the prize money is higher than the UK. We will then look at setting up horse racing operations in both France and the US.

The ability to invest in something that you are also passionate about is certainly a luxury in itself. Through my company, I have been able to engage with markets and sectors that are of interest to me, and also help and advise clients and partners who are looking to do the same.

Investing in the luxury market certainly takes research, time and knowledge, but it can also be extremely rewarding and enjoyable. Make sure you seek advice from an industry expert, but most importantly, enjoy the pleasure of investing in something that you really enjoy and appreciate.