Ferrari fever? Classic cars roar into investment funds By Reuters

Written by Valentina Za and Giulio Piovaccari

MILAN (Reuters) – In 1977, a Ferrari (NYSE) owner dumped his 1962 250 GTO because his wife complained it was too noisy, says Andrea Modena, Ferrari’s classic car division chief. It was either her or the car.

“At present, I am not sure that the wife would have won.”

Times have indeed changed. In 2018, the same Ferrari model became the most expensive car ever sold when it sold for $48 million at auction. Last year, that record was settled by a 1955 Mercedes-Benz 300 SLR Uhlenhaut Coupé which fetched €135 million ($149 million).

This type of mega deal is at the forefront of billions of dollars of annual spending on classic cars globally in a wave of investment in this alternative asset.

Vintage cars have risen in value 185% over the past decade, outpacing the growth of luxury wine, watch and art competitions, and ranking second only to rare whiskeys, according to Knight Frank’s 2023 wealth report.

The market has expanded beyond a relatively small community of collectors to include investors attracted by the expectations of high returns as well as the lack of attachment to mainstream portfolio assets such as stocks and bonds.

“We’ve been watching the market for a long time,” said Giorgio Medda, CEO and Global Head of Asset Management at Italy’s Azimut. “The track record over the past 30 years tells us that classic cars have become a financial asset class that we want our customers to have in their portfolios.”

This year, the asset manager launched what it describes as the world’s first “evergreen” fund to invest in vintage cars, and says it will only bet on cars worth more than €1m each.

Under the guidance of Alberto Schon, president of Rossocorsa, Ferrari and Maserati dealer, the fund says it will select cars with a unique history.

While the Azimut Fund will not have an expiration date and can receive new funds indefinitely, small Swiss asset manager Hetica Capital launched a €50m ‘closed-end’ fund in 2021, which it also said is the first of its kind.

The Hetica fund, which is targeting returns of between 9% and 15% after seven years, has bought dozens of cars so far and aims to have 30-35 cars by year five, leaving the last two years to sell cars and pay. investors.

The plans are bold.

“We’ve seen over 100 attempts to create funds in the past. No one has succeeded in building a diversified investor base and a diversified auto portfolio,” said Dietrich Hatlapa, founder of classic car research house HAGI, which provides sector data used by Knight Frank.

Nor is it a sector for the financially faint of heart.

Registered in Luxembourg, both the Azimut and Hetica funds have a minimum entry investment of €125,000.

“We get a lot of calls from people looking to invest 1,000 to 2,000 euros and we have to turn them down,” said Walter Panziri, who manages Hetica’s Klassik fund.

Furthermore, a small scratch or dent, or a replacement part, can deal a severe financial hit. For example, replacing the bumper of a rare old car can cost just $15,000, Modena says.

Graphic: Passion Investments – https://fingfx.thomsonreuters.com/gfx/mkt/jnvwylbgzvw/knight-frank-luxury-investment-index.png

Keep cars alive

The running costs of car collections, including hefty storage and insurance fees, can easily reach 5-6% of portfolio value annually, according to Florian Zimmermann, who started buying vintage cars when he worked at Mercedes-Benz and has since built a collection. 300 vehicles with a partner.

“It’s getting harder and harder to find the right mechanisms to keep these cars alive. And you have to spend a huge amount of money to keep all these cars running,” he said.

Indeed, investment funds that manage auto portfolios can be a source of money for classic car divisions of automakers, which not only provide repairs and spare parts, but also certify the authenticity of vehicles for participation in shows and competitions.

The certification process alone can cost around €20,000, according to Mercedes-Benz Classic’s Peter Becker who said only the carmaker’s experts, who have access to its archives, can confirm the classic’s authenticity.

However, the market for classic cars is expanding as the number of wealthy people is also rising. The value of vintage cars grew 25% in 2022, its strongest performance in nine years and second only to a technical increase of 29%, according to Knight Frank.

Classic car insurance company Hagerty estimates that there are about $80 billion in collector vehicle transactions annually worldwide, including all auctions and private sales.

While North America remains the largest auction market, with Hagerty reporting $3.4 billion in auction sales in 2022 versus $774 million in 2007, Zimmerman said an increasing number of buyers have appeared in recent years in the Middle East, India and China.

They will be religious beings

Some market players say the global race to ditch combustion engine cars will only fuel interest in these relics from the vanishing era.

“Electrification will favor classic cars,” said Cristiano Bolzoni, Head of Maserati Classic Cars Unit, Maserati Classic. “Over time they will become cult objects.”

Ferraris are the most valuable vintage cars, according to Adolfo Orsi, founder of Classic Car Auctions Yearbook who has been tracking auction sales data since 1990, and who calls them “the premium companies in the sector.”

Ferraris had an average auction value of $589,000 in 2021-22, followed by Mercedes-Benz cars at $378,000 and Porsches at $348,000.

“The classic car community has changed dramatically over the past five to 10 years,” said Zimmerman. “Once only people knew cars inside out. But over time, others simply thought: I like these cars, I can buy one and not lose money buying it.”