By Jessica M. Curley
On 29 September 2014, Bonhams auction house, together with BigelowSands LLC, hosted the fourth ALT2 Conference at its Madison Avenue location in New York City, where about 100 attendees from a multitude of industries including banking, marketing, commodity trading, and law gathered to hear world leading experts in these fields discuss investments in “alternative alternative assets.” The three panels were dedicated to rare gems and diamonds, healthcare and entertainment royalty rights, and vintage cars. Some of the speakers included Susan Abeles, Director of US Jewelry, Roger Miller, CEO of Alchemy Copyrights and CIO the Bicycle Music Company, and Bruce Wennerstrom, Founder, Chairman and CEO of the Greenwich Concours d’Elegance. The half-day conference was followed by a wine tasting event lead by Jennifer Williams-Bulkeley, Managing Partner of AOC Investment Advisors.
An “alternative asset” is a newer type of asset that traditionally had not been included in a standard investment portfolio. Some “alternative assets” include hedge funds, venture capital, real property, and commodities. A distinguished class of alternative assets, so-called “alternative alternative assets,” has begun to increase in popularity and includes diamonds, fine art, stringed instruments, vintage cars, healthcare and entertainment royalty rights, wine and vintage watches.
At ALT2 event experts discussed how these alternative alternative assets have gained in popularity and are becoming increasingly accepted as a way to further diversify investment portfolios. For example, panelist Alan Landau, CEO and co-founding Partner of Novel Asset Management, attorney by training and graduate of Benjamin N. Cardozo School of Law, advised that the diamond industry is not highly regulated in general, and that because diamonds are not classified as a financial product, they are not regulated by securities laws despite their being utilized for investment purposes. Mahyar Makzani, Co-Founder & Joint Managing Director of Sciens Colour Diamonds Fund, who moderated the panel on diamonds, noted that his fund voluntarily provides clients with “comfort points” to fill the gap created by the lack of regulatory oversight of this specific asset class.
Experts on the music, healthcare and film royalty rights panel advised that these less institutionalized assets are governed by traditional US intellectual property law. Dempsey Gable, Managing Director & Founding Fund Manager of the Opportunity Fund within Alternative Investments of APG Asset Management, explained that under US copyright law, films and television shows can be licensed to provide low yield low risk investment opportunities for investors. Panelist Tadd Wessel, Managing Director of OrbiMed, advised on the complexities of the healthcare system, and spoke to ways in which US patent law affects investment decisions regarding healthcare royalties.
The final panel, dedicated to vintage cars, discussed the steadily increasing valuation of classic cars, and the asset class’ low volatility and low correlation to other alternative alternative asset classes. Panelist Eric Minoff, a Specialist in the Motoring Department at Bonhams, advised the audience on the rapid growth of motorcar sales at auction, noting the increasing investor interest in this type of asset. Bonhams recently auctioned a 1962 Ferrari 250 GTO Berlinetta, which went for $38 million, making it the most valuable car to ever be sold at auction.
The panels seemed to strike a chord with attendees whose questions largely pertained to the regulation of certain asset classes, liquidity issues, and yield to risk ratios. The panel dedicated to royalty rights was most informative on the issue of regulation, and was of significant interest to attorneys, as this asset class is strictly governed and regulated by US intellectual property law. Regulation of diamonds and vintage cars is much less extensive, but both respective panels noted that increased investor interest could create a demand for heightened oversight. Liquidity potential also varied greatly among the various alternative alternative assets, as discussed by each panel. For example, whereas the ability to easily sell diamonds on the market make them highly liquid, copyright licenses, however, involve complex ownership and usage issues that prevent the asset from being easily alienable, and therefore have low liquidity. Yield to risk ratios also varied across the asset classes with film and TV shows providing a low risk low yield investment opportunity, while other tangible assets had a higher risk due the potential for physical damage or loss.
The ALT2 Conferences are by invitation only.
About the Author: Jessica M. Curley is a post-graduate fellow from the Benjamin N. Cardozo School of Law. She is pursuing her interest in art law and financial regulation in New York, and may be reached at jessicamcurleyATgmailDOTcom.