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Time to retire for the 60/40 rule: modern allocation turns alternative

Guest Author
12.9.2022

luxury Watches

With a new world (and new finance) emerging from the return of persistent inflation and preparing to face an expected recession, some argue that the 40/60 portfolio rule has finally reached retirement age. In its place, a new 'modern' portfolio finds its way, in which 30% is allocated to alternative investments. Among these are collectible goods, including watches, vintage cars, wines, and spirits, far more than mere "passions" when considered investment goods. We spoke with Ioana Surdu-Bob, co-founder of Konvi, the first pan-European crowd-investment platform that allows small investors to own fractions of alternative assets such as watches.

It is well acknowledged by the market the concept of asset diversification. However, if it is pretty simple to think how to integrate bonds or equity, how can an investor integrate alternative assets?

In the last few years, investors have been searching for methods to build different alternative asset allocations by themselves, moving forward from the traditional 60% equity and 40% bonds. In addition, investment guidelines are evolving with the markets within the context of high inflation, slow economic growth, geopolitical turmoils, and a less globalized world.

For instance, research by the New York-based private equity firm KKR has shown how a modern portfolio consisting of 40% equity, 30% bonds, and 30% alternative investments enhances returns and reduces volatility in contexts of high inflation.

A large budget has been necessary for a long time to build a diversified alternative asset portfolio. As alternative assets are all non-traditional investments, many asset classes fit in the alternative bucket, such as startup investments, private equity, private debt, real estate, or exotic assets/collectibles - Konvi's focus.

To invest in most alternative assets, investors must allocate a large amount of upfront capital, usually €50,000 or more. Konvi, for instance, offers access to fractional investments in watches, wine, and other collectibles starting from only €250.

Such collectibles, so-called exotic assets, are a grand entry to alternative assets for regular investors due to multiple factors. Firstly, unknown assets are an inflation hedge because they are tangible assets whose prices are going up with inflation; secondly, they present a low correlation to traditional investments; and lastly, they offer higher average historical returns than traditional investments.

What’s the model proposed by Konvi in this context? What about its benefits compared to direct (and solo) purchases of alternative assets?

Direct purchases of alternative assets can be very costly - one may invest €100,000+ to purchase a high-quality alternative asset. Moreover, access to investment-grade assets requires industry connections. If one does not have deep knowledge about the asset class they are investing in, there is also a high risk of choosing the wrong asset (or, even worse, fake). Investing in Konvi has three benefits: diversification, reduced risk & increase safety, and access.

Firstly, Konvi enables any investor to participate in watch and wine investments valued at €100,000+ from only €250. Furthermore, the low entry barrier helps customers to reduce risk by participating as co-owners in multiple investment opportunities. Customers can therefore achieve diversification within the exotic assets space.

Secondly, Konvi is also the preferred option from a safety perspective. Konvi operates as a three-sided marketplace connecting retail investors with world-leading suppliers through holding companies. Once investing in a funding project, Konvi's customers become shareholders in a holding entity (SPVs, special purpose vehicles) whose whole purpose is to purchase, manage for 3-5 years, and sell one asset. Through the holding entity, Konvi's investors become real co-owners of the asset - Konvi or the supplier does not own it, therefore offering the customers maximum safety.

Lastly, the assets are selected by pre-screened leading asset suppliers (such as WatchFund, CultWines), which purchase and securely store the asset. As a result, Konvi's suppliers have access to the most exclusive investments with a high appreciation potential purchased directly from the producer (primary market), often under the retail price. A great example of a watch purchased by the Konvi community is the RRP $500,000 Cartier Extra Large Tortue High Complication Platinum, of which only 15 exist in the world.

The assets funded on Konvi always have a predetermined holding period between 3 to 5 years. Of course, as a customer, you may choose the length based on your personal financial goals. But, it is guaranteed that the holding period for each project is ideal, as the supplier always chooses the assets best fit for the predetermined holding period. Remember that some asset classes, such as cars or watches, may work with shorter periods of 3-5 years, while assets like art or whisky may require 5-10 years holding periods.

Art and the vast majority of collectibles are usually renowned to be illiquid investments. However, with respect to “traditional” investing, much of the attention is given to long-term themes, or megatrends, that recommend a holding period of 5-10 years or longer (think about sustainability, for example). So, how does the market respond to alternative assets in this context?

It is recommended that exotic assets be held for more extended periods spanning multiple years because of their exclusivity. The longer these assets are not available on the market, the higher the monetary value associated with them will be. Therefore most investors seriously investing in exotic assets prefer long-term investing to maximize returns. While the reason may differ, many investors invest for the long term for retirement or kids' education. Such investors build a diversified portfolio, including stocks, bonds, and alternative investments (including exotic assets).

While it is possible to invest in alternative assets for the short term, exiting through secondary markets may be risky as such investments are not widely traded. Therefore, it is generally preferred to consider the asset locked for a set period, and of course, if an early exit opportunity arises, take advantage of it.

You come from a background of traditional investing. Why go into alternative ones besides passion?

I've always invested in alternative investments from an analytical rather than a passion perspective. Besides traditional investments such as ETFs, I added various alternative investments to my portfolio. I invested in real estate due to the potential appreciation and low-interest rates at the time. I invested in peer-to-peer loans to yield profits regularly. At the same time, I dollar-cost-average a tiny amount with Ethereum to avoid losing the potential opportunity within the crypto space. I sought exotic assets such as watches and handbags but did not have access due to the high cost of these items.

In this context, my co-founder (and life partner) and I saw the vast opportunity to make fractional investments possible within the exotic assets space and set ourselves to build a European-wide solution. In addition, we're working hard to bring awareness to portfolio allocation and wealth building. Besides a crowdfunding platform, Konvi now launched 'Discover', a community where our 20,000+ users can discuss investment strategies - Join us for free!

Note: this article only engages the opinion of its author and does not constitute financial advice.

About the author

Giulia Bacelle is Branded content editor & Project manager at WeWealth, the most important Fintech in the wealth management field in Italy. It’s a fast-growing business based in Milan, created by asset managers and digital experts in financial markets. The original article is available at the following link.

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