THE City bonus season is upon us again, and while the Centre for Economics and
Business Research believes the total handed out will be 16% lower this year
at £7.4 billion, top staff are still expected to pocket seven-figure sums.
Goldman Sachs, the US investment bank, kicked things off last week when it
announced its employees around the world would share a bonus pool of $18
billion (£8.8 billion), giving staff an average of about £300,000.
Last year, bankers invested the bulk of their money in property. Savills, an
estate agency, estimated that about £5.5 billion of 2006’s £8.8 billion UK
bonus round went into bricks and mortar. But with concerns that house prices
may fall next year, they are expected to look elsewhere for a home for their
money.
Raymond Sykes at Butterfield Private Bank said: “Given the current
uncertainties, we are seeing a high number of clients holding cash as they
wait for the outlook in the equity markets to become clearer.”
We look at the outlook for alternative assets.
Fine wine
Fine wine prices have slipped 3% over the past three months, according to the
Livex 100 index, as stock-market uncertainty has also unnerved wine
investors - although prices are still up 42% over the past year.
Julian Lamden at Coutts, a private bank, said: “When times are tough, people
cut back on luxuries like wine.”
However, Simon Staples at Berry Brothers & Rudd, a wine merchant, thinks
it is still a good time to invest if you pick the right vintages and he
believes fine wines will remain a popular choice for City workers. He said:
“It’s a very clever place to put your money. The luxury wines are going to
Russia and China – demand is still very strong and is unlikely to be
affected by an economic downturn. Supply of the best wines is tight because
only a certain amount has been produced.”
He rates the years 2005, 2003, 2000 and 1996 for bordeaux.
A case of 1982 Lafite Rothschild would set you back about £22,000, but you
could get a case of the 2005 vintage for £7,200 and Staples believes its
value could rise to around £20,000 within five years or so.
He also tips Château Margaux 2005 and said it is the best red wine he has ever
tasted. That would also cost about £7,200 a case.
While white is not normally the best wine for investment, a case of 2001
Château d’Yquem would cost around £4,000 now but could be worth between
£20,000 and £30,000 in 10 years’ time.
Next year could also be a good time to buy champagne as the 2000 vintage will
be released for sale in 2008, but stick with the leading names: Dom
Pérignon, Krug and Salon.
Gains from fine wine are not normally liable for capital-gains tax (CGT), and
you can also buy it free from tax and duty as long as you keep it in a
bonded warehouse. Berry Brothers & Rudd charges £9 a year per case for
storage, including insurance.
Antique furniture
Experts are predicting an increase in demand for antique furniture from City
workers.
Tim Corfield at Corfield Morris, a specialist adviser, said: “Demand for
furniture is on the up and I think the market will carry on rising for
another few years. There is always a lag between the housing market and
furniture.
“Many of those who used their bonuses to buy property in the last year or two
will have spent time doing up their homes and will now be looking to furnish
them.”
It could be a great time to snap up undervalued traditional pieces, which have
been left behind in the craze for everything modern. Early Victorian
furniture has fallen in value 26% in the past 10 years, according to the
Antique Collectors’ Club furniture index.
Corfield added: “It’s the best time for 20 years to be buying classic
traditional furniture. You can get a Victorian dining table for between
£3,000 and £5,000, while a Georgian table will cost £10,000 to £15,000.”
Art
Collectors have paid some heady prices for artworks in recent months and some
fear the market is in bubble territory, particularly in the contemporary
sector. In the past year alone, values have risen by about 55% according to
Hiscox, a specialist insurer.
Hugh Grant hit the headlines recently when the Andy Warhol portrait of
Elizabeth Taylor he owned was sold at auction for $21m. He had paid $3.6m
for the painting six years ago.
Robert Read at Hiscox, said: “The art market tends to lag the stock markets.
If the global economy starts to slow you can expect it to impact the art
market about 12 to 18 months later. The general feeling is that art prices
can’t keep rising at their current rate.”
If you still fancy investing in art, Tania Buckrell-Pos, an art expert at
Corfield Morris, suggests investing in modern British artists like Albert
Irvin, Patrick Caulfield or John Hoyland. She said: “I think the works of
these artists are on the cusp of rising in value significantly and should be
a solid investment. If you look at Caulfield and Warhol, the prices of
Warhol’s work are now unreachable, but you can still buy a Caulfield for
less than £1m.”
Jewellery
Marie Antoinette’s pearls failed to sell at auction last week, but the value
of the other lots sold at Christie’s Magnificent Jewels sale totalled £9.3m
and diamonds were the hot favourite.
The majority of sales were to private buyers, including some fund managers and
investment bankers.
A pair of pear-shaped diamond earrings, which were expected to sell for
between £220,000 and £260,000, went for £602,900, while an art deco diamond
choker by Cartier, which was estimated to fetch between £50,000 and £70,000
reached £334,100.
Single stones are also commanding record sums. An internally flawless
10.07carat diamond sold for $100,000 a carat last week. This compares with
two years ago, when a 11.98 carat flawless stone sold for $57,000 a carat.
Raymond Sancroft-Baker at Christie’s Jewellery said: “It shows the great
rarity value of good quality stones. They don’t come to market very often,
and when they do people are prepared to pay.”
Sancroft-Baker said that coloured stones - rubies, sapphires and emeralds -
are even rarer than diamonds because sources are drying up. He said: “From
an investment point of view, that’s what I would be buying.”
He recommends going for the best quality stone you can afford and antique
jewellery rather than new.
Shooting estates
City workers have ploughed money into farmland and forestry in recent years
because of the tax benefits - the land may fall out of your estate for
inheritance-tax purposes after two years - but sporting estates could be the
next big thing.
Farmland has surged in value by about 75% over the past three years, while
woodland prices have risen by around 50% this year alone, according to
Savills. But it expects much of this year’s bonus money to go into sporting
estates instead.
William Duckworth-Chad at Savills said: “A lot of money is coming in from the
City because shooting has become so popular - it seems to be the in-thing to
do at the moment.”
The best quality estates are commanding high prices - 12 estates have sold for
more than £10m this year, but Duckworth-Chad believes they are still good
investments. “It is the super-rich who are operating in this market - they
will be largely unaffected by the credit crunch. Supply is tight as many of
these estates don’t come to market very often.”
If an estate is out of your league, farmland may still be worth a look.
Savills believes arable farmland will increase by around 10% to 15%,
compared with a 3% rise in house prices.
Hedge funds
Hedge funds are expected to enjoy a resurgence this year as many top schemes
have made millions from the credit crunch.
The Credit Suisse/Tremont Hedge fund index had risen 12% to the end of
November compared with 1.8% for the FTSE All-Share.
Tim Cockerill of Rowan, an investment manager, recommends Thames River Hedge+,
which invests in a portfolio of other hedge funds and has returned 33% this
year. It has benefited from owning Paulson Advantage, for example, run by
New York hedge-fund Paulson & Co, which bet correctly the sub-prime
mortgage market would collapse when everyone else was positive. Exposure to
GLG, which invests in emerging markets, has also helped its performance.
WHAT TO BUY WITH A PAY-OUT
- 2005 Lafite Rothschild, £7,200 a case
- 2005 Chateau Margaux, £7,200 a case
- 2001 Chateau d’Yquem, £4,000 a case
- Victorian dining table, £3,000-£5,000
- Patrick Caulfield painting, from £250,000
- Pear-shaped diamond earrings, £602,900
- Art deco emerald, diamond & rocks crystal necklace, £334,000
