A 1966 Ferrari 275 GTS by Pininfarina sold for $2,365,000 at RM Auctions’ Arizona classic car sale in 2015. It happens to be my dream car but a nightmare for my wallet. In the last ten years, though, online investing platforms have adapted a way to realize my dream—in theory.
Most of us already own small shares in various companies through our stock portfolios. Over the decades, Wall Street has figured how to apply that basic concept to all sorts of things, including real estate and, increasingly in recent years, “passion investments” like art, wine, and—yes—cars. The classic car outfits have, to date, been so-called “fractionalized investing” operations that offer people a chance to buy into specific cars. A new entrant, London-based Tertre Rouge Assets PLC (TRA), has taken the idea of investing in cars a step further by getting itself listed on the London Stock Exchange as a special-purpose acquisition company, or SPAC. It aims to make investing in a collector car as simple as dropping money into your Vanguard account. Is it something you should consider?
Baby, you can’t drive that car
Let’s get the obvious downside out of the way: you’re not going to experience the car. Just as most real estate trust investors never visit their condominium or commercial developments, the “collectors” who put money into car trusts aren’t getting a week behind the wheel.
That alone will be, for many enthusiasts, a deal-breaker. Yet many investors, including those who put money into Tertre Rouge, clearly see it differently. “We needed £650,000, and we raised £1.17 million,” Tetre Rouge Assets co-founder Steven Schapera told Hagerty Insider.
Schapera says Tertre Rouge is preparing its next SPAC fundraising round, similar to an IPO roadshow in the United States. The company plans to raise several million pounds from institutional investors, brokers, and high-net-worth individuals once it receives approval from UK regulators. Investors will receive shares in TRA that they can trade on the London Stock Exchange. Tertre Rouge plans to use proceeds from the “roadshow” to purchase 10 high-valued rare collector cars. The plan, per the company’s website, is “holding them for a period of 5-7 years, and then selling them at a profit.”
Although for enthusiasts there’s a cognitive dissonance behind the notion of “owning” a car and never driving it, it’s a concept we’re pretty accustomed to in other parts of our finances. You don’t expect to get free access to Larry Page for IT help just because you have a few shares of Alphabet in your 401(k). And cars, at least, are tangible and understandable. (How many people investing in Alphabet truly understand the code that powers Google?)
Yet the money markets have a talent for making seemingly simple things potentially disastrous for investors who don’t appreciate the complexities involved.
Let’s talk about SPACs
The first nuance, in the case of Tertre Rouge, is that it is a SPAC. If you’ve read financial pages in the last few years, you’ve probably come across the acronym. The appeal of SPACs is that shares in them can be publicly traded on regulated stock exchanges. That offers investors liquidity and early entry into a “blank check company.” Those blank-check companies have one purpose—to raise money by selling shares to purchase private companies at a future date and take them public. Examples include online sports gaming platform Draftkings (DKNG), space tourism operator Virgin Galactic (SPCE), car maker Fisker (FSR), and Hagerty itself (HGTY), all of which became publicly traded companies via SPAC deals.
“Instead of going out and buying a business for $100 million, what if you went out and bought a collection of cars for $100 million?”Steven Schapera, non-executive chairman and co-founder, Tertre Rouge Assets PLC
Schapera said the idea to use a SPAC for collector cars came to him one day while he was taking a shower. “And I thought, you know what, the SPAC model lends itself very well to…acquiring a portfolio of assets.” Instead of using millions of dollars to purchase a business, Schapera created his SPAC to acquire collectible assets like cars. “So, instead of going out and buying a business for $100 million, what if you went out and bought a collection of cars for $100 million?” he said.
Schapera, it’s worth noting, is a known quantity in the investing world. He has a reputation for navigating successful multi-million-dollar deals, like the sale of his BECCA cosmetics brand to Estée Lauder. Regulators consider the business experience of a SPAC’s originating partners as one of the regulatory hurdles before allowing it to trade on an exchange. His board of directors includes two-time Formula One World Champion Mika Häkkinen and British race car drivers David Coulthard and Allan McNish, to name a few.
Yet applying the concept of a SPAC to an asset like collector cars adds another layer of complexity, one that would likely give U.S. regulators pause. “It also has to pass the listing requirements of the Securities Exchange requirements as a business. Owning an asset is not a business in itself. It has to produce something,” explains Matt Simpson, a managing partner at Wealthspring Capital who specializes in SPACs (and, for what it’s worth, a classic car owner). “We haven’t seen any type of collectibles [publicly traded] only because they would have to meet the listing requirements of the exchanges,” Simpson said.
To that end, Schapera said Tertre Rouge is looking at getting into events, car storage, and blockchain technology businesses. He also notes that the company is listing on the London Stock Exchange, where the rules around SPACs are a bit different than in the States.
Are cars really good investments?
Beyond the technicalities of SPACs lies the fundamental question of whether classic cars make good investments. That may sound a bit odd in Hagerty Insider, given this publication’s frank talk about collector car values and appreciation. Yet we’ve also never been shy in pointing out that, while a car can earn you some money, the primary dividend is the joy of the machine itself. Take pleasure out of the equation, and the picture becomes cloudier.
“My general view on collectibles…is that it’s unrealistic to think that the financial returns will be as good as they are in stocks and bonds,” said economics professor Jay R. Ritter, the Joseph B. Cordell Eminent Scholar in the Department of Finance at the University of Florida.
A 2012 Social Science Research Network study looked at sales of art—the “passion investment” with the longest track record—between 1957 and 2007, and tallied appreciation at 3.97 percent per year, in real U.S. dollar terms. “This is a performance similar to that of corporate bonds—at much higher risk,” the study concluded. New York City art dealer and broker Margo Pollins Schab, who has been selling art to the world’s wealthy since the late 1960s, concurred. “Art doesn’t seem to me to appreciate as consistently and as fast as other equities.”
There are, obviously, examples of collectibles appreciating far faster, and investors have scored on them. The art investing platform Masterworks, for instance, sold a contemporary masterpiece by Cecily Brown for $1,800,000, resulting in a 35.0 percent annualized return (net of all costs and fees) to investors from the initial offering.
“My general view on collectibles…is that it’s unrealistic to think that the financial returns will be as good as they are in stocks and bonds.”Jay R. Ritter, Joseph B. Cordell eminent scholar, department of finance, the University of Florida.
Closer to home, the alternative asset platform Rallyrd.com touts a “1955 Porsche 365 [sic] Speedster, similar to one Rally holds” that netted a 568 percent gain—10.5 percent on an annualized basis—from 2002 to 2021.
But car collectors know that “similar” is often a slippery term and that, in any event, unqualified home runs are rare. Rally has brought 46 cars to the public market on its platform since 2016 and eight of them, according to Rally, have “exited” with an average 26 percent realized (note, not annualized) return.
Hagerty’s Blue Chip Index, which tracks price guide values of twenty-five high-end collectibles, has enjoyed an annualized return rate of 9.3 percent going back to 2007. Not bad, but keep in mind that the S&P 500, despite its current doldrums, has managed an 8.44 percent annualized return over the same period—and never required climate-controlled storage or an engine-out belt change.
The car investment folks argue they can beat the average by picking the right cars. Tertre Rouge’s website says it is “investing into assets that can deliver returns in excess of 15 percent per annum…through opportunistically sourcing the rarest and most desirable classic motorcars and motorcycles internationally.”
Last but not least, one must consider volatility. Cars make stable investments in large part because enthusiasts are willing and able to hold on to their rides through any dips. No one, to our knowledge, has ever liquidated their car collection based on movement in the Hagerty Price Guide. But shares, especially publicly traded ones, behave much differently. Shares can rise and fall in minutes depending on market sentiment or a business’ ability to generate revenue and manage cash flow.
Of course, any investment has some risk—even the car in your driveway. Which brings us back to my dream car, the 1966 Ferrari 275 GTS Hagerty Price Guide shows the value of the car today has fallen to $1.75 million, still out of my budget but if it keeps moving down…well a guy can dream.