Investing Styles of the Ultra-Rich: Sports Teams, Diamonds and More

"Let me tell you about the very rich. They are different from you and me," wrote F. Scott Fitzgerald, author of The Great Gatsby.

As you would expect, the uber-rich spend and invest their money in creative ways. Private jets, jewels and pricey art have always been de rigueur, but today's global millionaires are scooping up sports teams and pink diamonds, not to mention skyscrapers and acres of prime real estate. Let's follow the money…

Who?

What defines the "ultra-rich" from the merely "rich"? To be considered a multi-millionaire, it takes net assets of US$5 million or more, according to a breakdown by consultancy firm Knight Frank in its 2018 Wealth Report. More than US$50 million in assets puts an individual in the ultra-wealthy category, while US$500 million-plus garners a spot among the elite demi-billionaires.

Canada had nearly 77,000 multi-millionaires, around 5,500 ultra-wealthy individuals and 270 demi-billionaires in 2017, the Wealth Report showed. By comparison, in the U.S. those numbers were significantly higher at nearly 853,000, 38,500 and around 1,800, respectively.

Where?

In its ranking of cities that matter to the wealthy, as in where they live, spend, invest, spend their downtime and educate their children, the report's City Wealth Index identified New York, London, San Francisco, Los Angeles and Chicago as the top five. North American cities accounted for half of the top 20 spots, but no Canadian cities were among them. While New York took top spot in each of the overall categories, London ranked first in terms of the diversity of investors of different nationalities and boasted the largest number of five-star hotels (75). Dubai followed in the hotel category, with 61 luxury hotels. Overnight visitors to Dubai were the biggest spenders, followed by those to New York.

As for the world's luxury residential property markets, the Wealth Report showed China's Ghangzhou, Cape Town, Aspen, Amsterdam and Seoul had the biggest price jumps in 2017. Luxury homes prices in both Toronto and Vancouver dropped due to the introduction of a 15 per cent foreign buyer's tax and tightening capital controls in China, the report said.

Commercial property remained a preferred investment class in 2017, according to the Wealth Report. Last year, global transactions were valued at US$840 billion. "Super-cities" like London, the top destination, and New York continued to attract investors, it said. Overall, private investors accounted for a third of all commercial real estate purchases last year, the highest level in more than a decade, according to the report.

What?

For those who spend big on luxury items, popular purchases included watches, cars and jewellery. But topping the latest Knight Frank Luxury Index were art and wine, respectively. What's significant about that is that art has lagged behind assets like classic cars and wine for a while now in the Index. Giving art a boost last year were staggering results of two art auctions: the US$110.5 million sale of a Jean-Michel Basquiat painting and the record US$450 million sale of Salvator Mundi by Leonardo Da Vinci. The average transaction value of art sold in 2017 increased by 21 per cent, the report said.

Wine dropped to second spot, but still posted an 11 per cent increase in the Index in 2017. Coveted Burgundy, Bordeaux and choice labels from Italy and California were particular standouts.

While art has made a comeback, a new trend among the ultra-wealthy appears to be sports clubs. According to UBS findings cited in the Wealth Report, more than 140 of the world's top sports teams are owned by 109 of the world's billionaires. U.S. billionaires own the most sports teams, but Asian buyers are catching up fast, according to the report.

Other popular investments last year included: classic cars, like McClaren, Ferrari and Aston Martin; celebrity watches (Paul Newman's Rolex Daytona changed hands at US$17.8 million); coloured diamonds (a 56-carat pink diamond fetched US$71 million); and Chinese furniture and ceramics.

Why?

It's always interesting to know what's behind those big luxury purchases. Just what are the ultra-rich thinking when they pick up that US$22.5 million classic Aston Martin? According to the report, joy of ownership is the number one reason for buying luxury investments, followed by capital appreciation, safe-haven capital, portfolio diversification and finally, status among peers.

What luxury item would top your list?