Wednesday, 28 September 2016
Last updated 11 hours ago
Jul 25 2011 | 9:59am ET
First the bad news: investors in Filippo Pignatti Morano’s newly launched Classic Car Fund don’t get to drive the cars—so if you’ve always fancied yourself behind the wheel of a pre-war Bentley, you’ll need a Plan B. The cars purchased by the fund will not be driven, they’ll be stored (at a cost of about €5,000 annually each) and when they are moved, it will be by trained professionals.
But here’s the good news: if your goal is not to drive a classic car but to benefit from its increasing value, then the Classic Car Fund may be the—no pun intended—vehicle for you. Minimum investment is €100 which, as Moreno pointed out during a recent phone interview with FINalternatives, wouldn’t even “buy a wing mirror” for a classic automobile. But in setting the limit so low, he says, he’s giving smaller investors “the possibility…to invest in a market which has been increasing in the last years compared to the stock market…to invest in something in which otherwise [they] couldn’t participate.”
The German Association of the Automotive Industry has created an index to track the value of classic cars—the German Old-Timer Index or, as it’s known to insiders, the DOX. The index has followed the price development of 88 post-war classic cars since 1999 and shows an average annual increase in value of 5.7%.
Another index, Hagerty’s Cars That Matter “Blue Chip” Index, which tracks the price development of the 25 most sought-after post-war models (like the ’53 Chevy Corvette and the ’58 Ferrari 250 GT California Spider), was up—as of May 2011—7% over four months, 13% year over year, and 81% since the inception of the index in September 2006.
Classic cars can be vintage cars—generally considered to be those built between 1919 and 1930—or they can be new cars produced as part of a limited series, like the Bugatti Veyron. Thanks to the nostalgia of baby boomers, there is also a market for the muscle cars of their youth (think Mustangs, GTOs and Cameros). Moreno says his fund will concentrate on collectible cars priced in the €400,000 to €500,000 range. Cars that “have original provenance—coming from a win at a Concours d’Elegance, for example, a car which had a famous owner, starred in a cult film or has won a major race or rally such as Mille Miglia or Le Mans.”
Moreno has a “passion” for classic cars although he’s not a collector himself (he drives a Jeep and thinks being a collector would constitute a conflict of interest for the manager of a classic car fund). He does, however, have “many friends and family members who have collections of cars.” He says the idea of starting a classic car fund occurred to him in the wake of the 2008 financial crisis. As CEO of the Zurich-based Custoza Family Office (his full name is Filippo Pignatti Moreno di Custoza), he was beginning to wonder if family members would continue to entrust their assets to the family office.
“These other family members are fanatic car collectors,” says Moreno, who, in the course of discussions with them, realized that what they planned to do with their money, post-crisis, was invest in tangible assets. “And I thought, ‘Why not?’ They don’t trust very much the finance system, seeing what happened, so I said, ‘Why not make a classic car fund like these art funds?’”
So, he started studying art funds. The result is the open-ended fund registered in Liechtenstein, set up by the Count of Custoza Family Office, and quoted earlier this month on the Fondsboerse Deutschland (which means it is available to U.S. investors). The fund offers daily liquidity and a daily net asset value and price.
“To assist the quoted fund price in the near term, the fund can put a small (3-5%) stake into car-related stocks,” says Moreno, “70% into cars and 25% in cash to add to liquidity and give purchasing power should an exceptional car come to market.” If all their investors decided to withdraw at once, he says, “we could always sell the cars—cars are a liquid asset in this market, you can always sell a car.”
Additional income, according to the fund’s web site, may be generated by lending the classic cars in the portfolio to museums, film studios, private exhibitors, etc.
The fund is targeting ambitious returns between 15% and 17% per annum but Moreno claims the figures are achievable: “If you ask private collectors how much their car sold for, it’s difficult to get the right answer. If they do pass on this information they usually give you the price minus 15-20% of what the car actually sold for. However, if you ask them if they achieved at least 15% p.a. after costs on the car, they will say yes.”
Auctions account for about 30% of classic car sales each year, while the other 70% are private transactions conducted between collectors.
“We’re going to buy, ideally, from private collectors; first of all, because we manage to get cars in good condition [and] we know the story of the car, and also because if you buy a car at auction you pay a high commission, so in the interests of our investors and keeping running costs down we will generally aim to purchase outside the auction arena.”
The fund’s official advisors and consultants include a former Sotheby’s director and a current Christie’s managing director, but Moreno says he can also tap knowledgeable family members and friends to inspect cars the fund is considering purchasing to ensure originality. He says two people will check out each car and if both give the thumbs up, then a UK-based lawyer who specializes in such work will check to ensure the owner “is the owner,” says Moreno, because “today, you can falsify money, you can falsify passports you can also falsify the chassis number of a car, the documentation, the bills of the garage and everything.”
“We’re just going to get cars that are in perfect condition and [where we] have 100% history of the car, because, as I say, if there’s two months you don’t know what happened to this car, then it adds a risk in purchasing it for the fund.”
Moreno has a wish list of cars for the fund but he won’t give anything away until they have actually been purchased, for fear of driving up prices. The fund has both official and unofficial advisors, he says, because unofficial advisors can “move more easily in the market.” They’re in the process of raising funds now, with a €5 million target. Once they begin buying cars they’ll post photos of their purchases on the fund’s web site, explaining the car’s history and the reasons they believe it will increase in price. The photos will serve a double purpose, he says, letting investors know how their money is being spent and attracting potential buyers.
Moreno says the plan is to get some “youngtimers” (cars from the ‘60s, ‘70s and ‘80s), which are cheaper, and hold them from three to five years while holding the high-end cars—the €500,000 and above cars—for a maximum of two years.
At the moment, the fund’s only real competition seems to be UK-based IGA Management’s Iconic Car Fund. But that fund differs from The Classic Car Fund in at least three significant aspects: one, it’s got Pink Floyd drummer (and classic car collector) Nick Mason as a spokesman; two, its minimum investment is US$500,000; and three, the funds are locked in for seven years.
Moreno says his fund offers daily liquidity, which he sees as a distinct advantage over having your money locked up for seven years. Moreover, he says, for $500,000 you could buy your own classic car. Such a high minimum, he says, limits access to an opportunity they are “determined to offer to everyone.”