Plunging tock markets have sent investors searching desperately for fresh ways to make money. The wealthy, in particular, have been pouring their cash into exotic assets such as hedge funds, art, fine wine and stamps to beat the downturn.

It seemed like a smart move as the credit crunch took hold, and for a while these alternative investments seemed fairly immune from the turmoil afflicting shares. But as we head into recession there are worrying signs that some of the assets that appeal to the super-rich are struggling to hold their value.

Hugo Shaw, of Bestinvest, the independent financial adviser, says: “Some view the spare cash of the super-rich to be enough to hold up the value of luxuries, such as fine art and wines. But no seam of gold lasts for ever. A sharp recession will cause them to drop in value.”

We look at how the investments sought out by the wealthy are faring in the economic downturn.

Hedge funds

These were designed to be low-risk investments that protect capital when the markets fall. Many funds still have this approach, but others have been taking big risks that have not paid off.

In the past year the FTSE all-share index has fallen 38 per cent, while the CSFB Tremont AllHedge index is down 14 per cent.

Some hedge fund managers, including those running the Close Man Hedge Fund and Marshall Wace's London-listed MW Tops fund, have asked investors whether they want to call it a day and get their cash back. However, advisers say that it would be wrong for investors to dismiss hedge funds.

Mick Gilligan of Killik & Co, the stockbroker, says: “Hedge funds are out of favour at the moment, but the best have provided protection against stock market falls and should continue to do so while the conditions remain difficult.”

He recommends BH Macro, which listed on the London Stock Exchange in March last year. It is what is known as a global-macro hedge fund and uses techniques similar to those

that made George Soros, the famed American investor, a billionaire. The fund bets on big moves in global interest rates or economic trends by investing in currencies and government bonds. The fund has returned 9 per cent over the past year, though it has fallen by 11 per cent over the past six months.

Art

For the past 12 months the art world has appeared to be a safe haven against the credit crunch. But last week that impression was shattered when a rare painting of the artist Francis Bacon by Lucian Freud sold for £1.6 million less than expected and a number of contemporary art auctions reported disappointing results.

A contemporary art sale at Sotheby's fell more than £8 million short of its expected minimum of £31 million. At Christie's, meanwhile, nearly half the lots were unsold.

Ian Peck, of Art Capital Group, the merchant bank, says: “Many collectors are clearly taking a wait-and-see approach, proven by the small pool of bidders over the weekend auctions.”

The contemporary art market, which until now has been the focus of the most frenzied buying, is particularly susceptible to an economic downturn because it has been fuelled by the huge salaries of hedge fund managers and newly moneyed buyers from Russia, China, India and South-East Asia. But even these people are pulling in the purse strings as their wealth erodes because of the falling price of oil.

Wine

The boom in wine prices appears to have stalled. The Liv-ex fine wine index, a benchmark set up by the London International Vintners Exchange that tracks the secondary market for the 100 top wines, returned 40 per cent last year. Since the start of the year, however, it is up only 6 per cent and prices fell 4 per cent last month.

Justin Gibbs, of Liv-ex, says: “There is a heightened sense of nervousness; an element of destocking by wholesalers and private individuals who are short of cash and taking profits. I suspect that we will see continued pressure on prices.”

A number of wine investment funds have popped up over recent years, aimed at people not confident enough to buy wine themselves. They are suffering as prices for the top vintages start to fall. The Wealth Asset Manager's Fine Wine fund has fallen 2 per cent this year.

If you do still feel like a tipple, Mr Gibbs believes that wines from 1990, 1995 and 1996 offer good value.

Stamps

Collectors have been enjoying a buoyant market. According to the SG 100 stamp price index, which measures the performance of the most frequently traded items across the world, prices have risen by 59 per cent since 2000.

However, the price rises have begun to slow. The index is up 3 per cent over the past year and prices have barely moved since June.

Experts worry that inexperienced investors will suffer if the market turns, as it is prone to do. In the 1970s investors flooded the market, sending prices soaring. Soon afterwards collectors banked their profits and prices crashed. Yet Stanley Gibbons, the dealer, remains confident about the market and is offering a guaranteed investment scheme that promises a return of 4 per cent to 6 per cent a year over four, five or ten years.

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