The demand for passion investments among high net worth individuals increased in 2010, largely driven by the emerging economies, with the overall value of some categories of such investments rising, although asset allocation remained largely flat, according to the Merrill Lynch/Capgemini World Wealth Report 2011.

Passion investments, which range from the purchase of luxury collectibles such as yachts and jets to art to purchasing sports teams, are no longer considered acquisitions merely for emotional appeal and aesthetic sensibilities but are viewed as wealth preservers and portfolio diversifiers in their own right, the report found.

In terms of asset allocation luxury collectibles remained the most popular, with HNW individuals globally allocating 29 per cent in 2010 (2009: 30 per cent). This was followed by art, which remained flat at 22 per cent, and jewellery, gems and watches, also at 22 per cent (2009: 23 per cent). Next was the other collectibles category which includes antiques, wine and coins at 15 per cent (2009: 14 per cent), then sports investments, which remained flat at 8 per cent. Finally the miscellaneous category, which includes such things as club memberships, travel, guns, instruments, rose to 5 per cent (2009: 3 per cent).

Regarding luxury collectibles, demand for luxury cars rebounded broadly in 2010, says the report, but most evidently in Asia-Pacific, Russia and the Middle East. As an example, Mercedes-Benz sales in China and Hong Kong jumped by 112 per cent and Ferrari named Greater China as one of its top five international markets.

In the art market the share was higher among European HNW individuals (27 per cent) but highest in Latin American investors at 28 per cent. The report said 42 per cent of advisors say they believe their clients invest in art primarily for its potential to gain value, showing that this market most obviously straddles the financial and passion investment classes. Notable sales were a Giacometti painting (sold for $104.3 million) and a Picasso (sold for $106.5 million) - both world record breakers. Chinese demand was reported as strong for both domestic art, such as the works of Liu Ye, and European and Fine Arts. The report estimated the total sales of Chinese arts at just over $4 billion between 2000 and 2009.

In the jewellery, gems and watches category Middle Eastern HNW investors had the highest share at 29 per cent, although this fell from 35 per cent in 2009. Diamonds proved to be a key trend, with record prices at international auctions showing that they are viewed as a safe and high-growth investment alternative. The demand for fine rare watches was highlighted by Christie’s International posting a $91.2 million in such auction sales, reporting “exponential growth in buyer participation from Asian markets, led primarily by China and Hong Kong”.

Other collectibles noted a demand for rare coins, attributed to the rising gold prices, with pieces such as Spink Ancient and Commemorative Medals beating pre-sales estimates. Meanwhile Sotheby’s sold $88.3 million in wine at global sales, doubling the 2009 total, says the report, noting that sales from its Hong Kong wine auction were up a staggering 268 per cent.

Finally, in the world of sports investments, Middle Eastern HNW investors (13 per cent) and those from Asia-Pacific ex-Japan (10 per cent) and Latin America (10 per cent) led the charge. The report highlighted Stan Kroenke’s purchase of the St Louis Rams American football team and Michael Jordan’s controlling interest purchase of the Charlotte Bobcats basketball team in 2010.

Indeed, the report affirmed that the trend among the global HNW community to acquire passion investments is often a financial decision as much as it is preference-based, and tends to rise and fall with overall levels of wealth.

“Many investments of passion are also solid financial investments and will continue to play a role in HNW portfolios, especially HNW individuals seeking investments with a low correlation to global financial markets,” said the report.