Anybody working in the family office space will be more than aware of the ever-shifting landscape that typifies the industry, including a significant uptick in what are usually referred to as ‘alternative’ investments or allocations. Recent years have seen family offices increasing alternative allocations to up to 50 percent, and yet during this period of rapid innovation and expansion, cultural assets remain somewhat overlooked.
If this feels a little counterintuitive, it’s hardly surprising. After all, cultural IP is moving quickly – barely a week goes by without news of music royalties hitting the headlines, art investments reaching hitherto unimaginable heights and sports teams gaining new shareholders. Despite this, we’re still seeing disconnected verticals, disparate infrastructures and separate monetization models resulting in a host of missed opportunities in the cultural space.
At the heart of this issue lies a fundamentally siloed approach to contemporary family office investments – it’s one that misses out on significant portfolio benefits that could arise from viewing cultural assets as a singular, monolithic unified class. Ultimately, there’s no getting away from the facts and figures, and cultural assets have proven themselves to deliver the right kinds of diversification, steady income streams and more – and we can expect this to continue developing in the near and distant future.
Simply put, the opportunity for family offices are clear: this space will get crowded before too long, so getting ahead of cultural verticals is essential to reaping the varied benefits it presents.
Why do cultural assets matter?
It’s not hard to see why so many family offices have been a little wary of cultural assets – after all, they’ve long been seen as too inherently tied to ‘passion investments’ that are limited to collectible items, art, spirits and fine wine. Many institutions simply lack the operational structures needed to manage these particular sorts of assets, which generally don’t fit the kind of due diligence frameworks that many family offices rely on. What’s more, they tend to be fragmented across various platforms (one for sport, another for whisky, etc) which makes standard reporting tricky to stay on top of.
Furthermore, cultural assets have only recently become widely accessible – it’s only in the past couple of years that film funds (for example) have become institutionalized and the art market has been transformed by digital fractionalization. It’s understandable, therefore, that many clients simply aren’t aware of the myriad possibilities out there.
Look a little deeper, and you’ll find that culture as a unified class has a lot to offer. There are tangible cash flows in the form of franchise distributions and royalties, significant capital appreciation, inflation resilience (most obviously in the fine wine and spirits market in recent years, which have shown 10% compound annual growth for three decades) and uncorrelated returns in art and sports equity, that move independently from public markets.
There are also more intangible benefits to be uncovered. As wealth is being transferred to a new generation in unprecedented quantities, culture offers a genuine and meaningful opportunity to connect younger UHNW inheritors and investors while delivering excellent returns.
The power of resonance
Where does cultural value come from? Some allocations gain their value from cultural significance and scarcity, others generate more tangible and measurable income through royalties and licensing. However, they all share certain attractive traits well worth the attention of today’s family offices: long-term appreciation potential, illiquidity and passion-based demand.
Furthermore, there’s a resonance at the heart of cultural assets that relates to the values and identity of investors, which is perhaps why we’re seeing a real dynamism in the industry in the form of younger UHNW individuals wishing to reflect their personalities through their investments.
It’s not just about the emotional aspect of investment, either. The opportunities for monetization are everywhere, and there’s seemingly positive returns available for every cultural passion.
Take the movie and art industries, for example. The indie film investing scene is typified by a high risk, high passion approach, but there’s diversified revenue to be uncovered in foreign sales, streaming rights and merchandising, even for projects that fail to hit their sales goals. The vertical usually referred to as ‘esoteric cultural arts’ (covering fine art, collectibles and equestrianism) saw appreciation of 12.6 percent from 1995 to 2022, and similar figures are reported for the classic car and vintage horology scenes, too.
Some verticals, such as sports and horseracing (in which fractional thoroughbred ownership has dynamised investments over the past few years) are reasonably well-established and understood. However, the digital streaming revolution has transformed opportunities within the world of entertainment via podcast investing, and the hospitality and festival scene is booming on the back of a demand for real-life engagement with the arts, culture and dining. It’s still relatively early for many of these scenes, but savvy family offices will be able to see where monetization can be unlocked through brand equity, syndication and licensing.
Beyond the bottom line
There’s an important alternative aspect to consider here that’s easy to overlook: cultural investments aren’t just about financial returns. They offer access. Platforms as varied as the Monaco Grand Prix or Art Basel extend invitations to host clients, partly to court favour with returning UHNW customers, and partly to ensure those relationships flourish from generation to generation.
Cultural investments create value in its truest and most varied sense. They allow red carpet access for those investing in film projects, and grant access to equestrian showcases, ultra-VIP booths and meet-and-greets. By reflecting a client’s values and passions, they deepen legacy while delivering returns. This is partly why we can expect an imminent boom in more high-end concierge and white glove platforms, as the consolidation of access to arts and culture with unified interfaces has real demand behind it. Passion investments will become portfolio components, and wealth managers for the UHNW – especially those passing their wealth to a new generation – will do well to stay on top of these developments.
Taking action in the cultural investment space
How can family offices for the UHNW stay ahead of the curve? It’s primarily a matter of educating oneself on the unique nature of these assets and how they’re changing today and in the near future. Cultural investments tend to be long-term, illiquid and bespoke by nature; something that’s a strength for those with the passion and patience to see good returns, but might not be right for every UHNW portfolio.
It’s also a matter of altering one’s perspective on what cultural assets really are; this is a class that’s far from just ‘art’ in the traditional sense, and is one that spans cinema, collectibles, sports, music and IP rights, to name but a few. To make the most of these, it’s wise for family offices to seek out specialists who deeply understand the financial and creative aspects of these verticals, as well as the platforms that can translate cultural assets into structures resonating with the family office’s way of working and financial goals.
Ultimately, the greatest rewards await those who seek out opportunities. By getting involved early, developing the expertise and treating culture as capital, the shifting markets provide no shortage of possibilities for growth.
