Time to retire for the 60/40 rule: modern allocation turns alternative
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Should an up-to-date portfolio also include alternative assets? A focus on collectable, traditionally inaccessible to most but now increasingly accessible
The importance of diversifying the assets in a portfolio is well recognized. However, how can an investor incorporate alternative investments within their strategy if it is easy to think about integrating bonds or stocks and real estate?In recent years, investors have been looking for ways to build alternative asset allocations, moving away from the traditional rule of 60 percent going to equities and 40 percent to bonds. Indeed, new recommendations have emerged this year amid high inflation, slow economic growth, geopolitical turmoil, and a less globalized world than in the past. For example, research by KKR, a New York-based private equity firm, showed how a modern portfolio of 40 percent stocks, 30 percent bonds, and 30 percent alternative investments increases returns and reduces volatility in high inflation environments.
However, building a diversified portfolio of alternative assets has long required large budgets. These include private equity, debt, investment in startups, and collectible assets. It is precisely on the latter that Konvi focuses. In fact, investors need to allocate a large amount of initial capital to invest in most alternative assets, usually €50,000 or more. However, many platforms are beginning to democratize access to alternative asset classes. Konvi, for example, offers access to fractional investments in watches, wine, and other collectibles from as little as €250.
Such collectibles, so-called passion assets, are excellent entry points for investors due to multiple factors. First, collectibles provide a hedge against inflation because they are tangible assets whose prices rise as the cost of living increases; second, they have a low correlation with traditional investments; and finally, they have historically generated higher average returns than conventional investments.
What is Konvi's proposed model in this context? What are its advantages over direct (and solo) purchases of collectible assets?Direct purchases of alternative assets can be costly: for high-quality assets, for example, even more than 100,000 euros can be invested. However, access to such assets requires the investor to have woven an extensive network of connections with key players in the industry. There is also a question of preparation in the field: if one needs a deep knowledge of the asset class in which they are investing, there is also a high risk of choosing the wrong (or, worse, false) asset.
In comparison, investing in Konvi has three advantages: diversification and thus risk reduction, safety, and access.
First, Konvi allows any investor to participate in investments in watches and wine worth more than €100,000 from as little as €250. The low barrier to entry will enable clients to reduce risk by participating as co-owners in multiple investment opportunities. Clients can thus achieve diversification in alternative assets.
Second, Konvi is also a viable option from a security perspective. Konvi operates as a three-sided marketplace that connects retail investors with the world's leading providers through holding companies. Once invested in a financing project, Konvi's customers become shareholders in a holding company (SPVs, special purpose vehicles) whose sole purpose is to purchase the assets, manage them for an average period of 3 to 5 years, and finally resell them. Through the holding company, Konvi's investors become actual co-owners of the asset (Konvi or the provider do not own the assets), thus offering customers maximum security.
Finally, the assets in which Konvi invests are pre-selected by leading providers (such as WatchFund and CultWines), who securely purchase and store the asset. These companies have access to the most exclusive investments on the market, with high appreciation potential, purchased directly from the manufacturer (primary market), and often have a lower price than the retail price. An excellent example of a watch purchased by the Konvi community is the Cartier Extra Large Tortue High Complication Platinum, worth 500 thousand euros, of which there are only 15 pieces worldwide.
What are the recommended holding periods for assets listed on Konvi?Assets financed through Konvi always have a predetermined holding period between 3 and 5 years. Although clients can choose the duration of their investment based on their personal financial goals, the ideal holding period recommended by the provider is determined based on the type and characteristics of each asset. Not to be forgotten, some asset classes, such as automobiles or watches, may have shorter holding periods of 3-5 years, while assets such as art or whiskey may require holding periods of 5-10 years.
Art and most collectibles are generally known to be illiquid investments. However, in their "traditional" counterparts today, much of the focus is on long-term themes, or megatrends, which recommend a holding period of 5-10 years or more (think sustainability, for example). How is the collectibles market responding to this?One reason that contributes to the illiquidity of collectibles is their exclusivity. The longer these assets are not available in the market, the greater the monetary value associated with them. This is why most collectible investors prefer to invest for the long term (whether for retirement or their children's education, etc.) to maximize returns. Although investing in short-term alternative assets is possible, getting out of secondary markets can be risky because such investments are not widely traded. Generally, it is preferable to consider the asset locked in for a certain period; if an early exit opportunity arises, it is good to take advantage of it.
A plea to "traditionalist" investors: any reasons to expand into alternative assets besides passion?I have always invested in alternative investments from an analytical rather than a passionate point of view. In addition to traditional investments such as ETFs, I have added several alternative investments to my portfolio over time. I invested in real estate because of the potential appreciation and low-interest rates. I invested in peer-to-peer lending to make monthly profits, while with Ethereum, I averaged a minimal dollar cost not to miss the potential opportunity within the cryptocurrency space. I tried to buy collectibles such as watches and bags but could not access them because of their high cost. In this context, Konvi's co-founder (and my life partner) and I saw the vast opportunity to enable fractional investments within the collectibles space and set out to build a Europe-wide solution.
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