Collectibles ranging from Lamborghinis to vintage Patek Philippe wristwatches have long been popular among the very wealthy. Now high-end luxuries and collectibles are becoming accessible to ordinary investors.
But there's a twist. Instead of buying an Old Masters drawing at auction and hanging it on your mansion's paneled wall, investors purchase "shares" in a collectible owned by a third party. Here's how that works: The owner "securitizes" the asset by issuing shares that each represent a portion of the object's underlying value, then sells them to retail investors, with the asset serving as collateral.
Objects and property worth anywhere from several thousand dollars to seven figures or more are being securitized into thousands of shares that trade on specialized exchanges for as little as $10 to $100 or more. Multiple marketplaces are popping up as part of a growing trend that combines personal interests with financial return.
True, the buyer doesn't get to display the Andy Warhol, wear the Rolex or drive the Ferrari behind the shares. Instead, they score bragging rights to owning a slice of something rare, coveted or valuable. And the shares can be traded, so if they rise in value, the share owner makes a profit.
Some platforms created recently to sell fractional shares have a secondary market where investors can buy and trade their paper.
It's an offshoot of shared ownership, which began with real estate and then expanded to private jets and yachts. In that system, an investor buys fractional rights to occupy a vacation house or use a private jet or yacht for a slice of time each year. Fractional ownership of vineyards lets an investor purchase a few rows of a vineyard and help out with the vinting process, after which the investor is usually obligated to buy the wine.
One platform, Rally, is what co-founder and chief product officer Rob Petrozzo described as a mix of "Wall Street" with "MoMA and Comic Con." The company owns 450 collectibles worth around $40 million, in 25 categories ranging from sports memorabilia to vintage cars.
"You can develop a diversified portfolio of those objects and those artifacts that you recognize, understand and talk about with your friends," Petrozzo said.
Scott Sturgeon, the founder of Oread Wealth Partners, a wealth management firm in Leawood, Kansas, cited portfolio diversification, exposure to different asset classes, low investment minimums and potential fractional share price increases as the main benefits.
"Instead of just having investments in individual stocks or bonds or ETFs, or mutual funds, they have these alternatives that are a little more 'interesting'," Sturgeon said. "It's a good conversation topic."
Fractional shares are a form of alternative investments, a category growing in popularity with advisors serving affluent clients.
But Sturgeon doesn't recommend clients put more than 5% to 10% of their investable dollars in any alternatives pacer costs, including fractional shares.
"With any alternative investment or alternative asset, there is potentially a higher risk for the asset to underperform," he said.
Sturgeon also sees other risks, such as the "hidden" fees and costs that platforms charge investors to store and hold the assets, and performance expenses –— when an investor has to pay a percentage-based fee when the a fractional share increases in value to a given performance threshold. Another issue is liquidity: alternatives like jewelry or property can be hard to sell at market prices on a short timeline.
Still, Petrozzo sees a lot of opportunity for the fractional market, as just about anything can be securitized for retail investors, whether they're music fans, wine appreciators or muscle car collectors.
"There'll always be a world where someone wants to make an investment on the things they care about," Petrozzo said.
To see a list of the most popular categories in fractional ownership, scroll down the slideshow.
