I meet up with Filippo Pignatti in a former Porsche dealership on the outskirts of Zurich that he, together with two other petrol heads, has transformed into a spectacular car showroom with exactly the right pit lane smell, featuring a selection of the cars in The Classic Car Fund (TCCF). This is also the HQ of the TCCF and where Filippo has his office. Italian and from Modena (where else?) by birth, he is a true European nowadays based in Switzerland where next to running a family office business he set up the TCCF five years ago, driven both by a passion for cars and for uncorrelated assets.
As Filippo tells me over an excellent espresso in the pit bar that is one part of the showroom, and as most readers of this blog know, well selected classic cars have provided better returns to investors over the last decade than most traditional and alternative asset classes, including things such as art, wines and gold. This is partly driven by the falling interest rates since the financial crisis, but also by baby boomers becoming solvent and realizing their childhood dreams and emerging market buyers that were not there a decade ago. “The Chinese have so far only been able to own classic cars abroad,” Filippo explains, “but that is about to change and that will create even greater demand in the future”.
The philosophy of the The Classic Car Fund is simple; buy well-selected cars at attractive prices following a thorough evaluation by an independent expert, and sell them later at a profit. The fund is not focused on any specific make or production year, but the emphasis is clearly on sports cars from various periods, especially Italian and quite a few of them from Filippo’s home city Modena. Holding periods vary vastly but the fund does not fall in love with its investments. Some cars have enabled the fund to realize a healthy double-digit profit in as little as three months, others will remain in the fund for up to a few years.
As always it is easy to be clever with hindsight and arguably you could have bought most Ferraris from the 90’s and earlier in these last years and realized a good profit. But it’s not just about finding the right model. “It has to be the right car”, Filippo explains, citing factors such as early production years, small, limited series, or, slightly surprisingly, famous previous owners. This last point explains two satellite positions in the fund’s current portfolio, a Maserati Quattroporte once owned by Elton John, and a fully-loaded and personalized Range Rover Sport initially ordered by David Beckham. “Obviously buying a famous person’s car brings an additional risk”, says Filippo and hints at the person’s reputation. “Should it come out tomorrow that David Beckham was doped through his whole career, that would not necessarily be good for the value of the fund”. Luckily though, the risks of that happening seem relatively small.
Next to selecting the right cars, the additional challenges of a car fund are the same as with a private car collection, most notably that you need a place to store them that is not only dry and warm but that also allows for regular exercising to avoid the cars being damaged from being immobilized. The TCCF stores its cars in various locations in Switzerland and Italy, and employs mechanics to keep them in shape. Two additional features of the fund further strengthens the link with private collections: subscriptions are permitted in kind, meaning that you can buy into the fund through a car or a car collection, following an evaluation by an independent expert. Ownership passes to the fund but the original owner receives a buyback guarantee at the same price up to two years from the point of purchase. Also, and perhaps of more interest for most, against a small fee, fund investors may borrow and drive the cars in the fund over a day or a weekend. Filippo smiles and says “take the Testarossa in the showroom down to St. Moritz over a weekend. If anyone asks you can truthfully say it’s your car, as it is part of the fund you are an owner of”.
In Filippo’s eyes, the tangible nature of the assets in the fund as one of its best guarantees of future value. “If something goes bad or the market turns completely, we can always sell the cars, making sure you do at least get part of your investment back”. He is also the firstto say that this is not something for the core of your portfolio but rather a satellite position. In terms of the current market he does not see any dramatic changes but some signs that it is becoming more selective, meaning greater expertise and competence will be required going forward. He also sees a breaking point relating to the electronic age: “the Testarossa, or Culo largo (large ass) as we call it in Italian, is a mechanical car. the LaFerrari is very complex electronically, which does not necessarily bode well for future values as it gets increasingly old and fragile”.
The Classic Car Fund has been running since 2012 and has provided investors with net returns of 7% on average p.a. after fees without any negative years (as per April, 2016). It shows no correlation to traditional assets and could thus be an interesting addition to a diversified investment portfolio. At its core though, it is really about the passion for cars. Before we shake hands and part, Filippo concludes with some very sensible words. “I always tell people that if you buy a classical car, do so because it is a car you like and that you like driving. After all, that is really what these cars are for”.
For further information on The Classic Car Fund you are welcome to contact me over the blog.