Jan. 19 (Bloomberg) -- Pink Floyd drummer Nick Mason is helping an investment group that aims to buy $150 million worth of classic cars and make annual returns of 15 percent.
Mason is an auto enthusiast who has competed five times in the Le Mans 24 Hours race. He is on the advisory board of IGA Automobile LP, which plans to buy the finest models by top marques of the type he collects. Mason’s garage houses cars by Aston Martin, Bentley, Bugatti, Jaguar, Ferrari, such as a 250 GTO, and Porsches including the 962.
“This is the first classic-car fund that’s purely for financial returns, rather than passion,” said Nick Lancaster, a director of the Guernsey-registered fund that began canvassing investors on Jan. 2. “We’re looking for a straightforward in-and-out return on our assets.”
Exceptional sports cars are making record prices, encouraging wealthy individuals to buy or sell physical objects while they assess the performance of financial markets, said dealers. Still, some are watching to see if a car fund can avoid the pitfalls of other investment groups such as those that invest in art, wine and whisky, not all of which have succeeded.
The Hagerty’s Cars That Matter “Blue Chip” Index, based on the values of the 25 most collectable postwar vehicles, has increased 67 percent from September 2006 to the end of 2010, according to the index’s compiler, auto appraiser David Kinney of Great Falls, Virginia. Over the same period, the Standard & Poor’s 500 Index fell 5.9 percent.
IGA enters the market at a time when buyers of collectors’ vehicles have become more selective. The Historic Automobile Group International (HAGI) Top 50 index of exceptional classic-car prices was up 6.6 percent in 2010, lower than its average annual growth of more than 12 percent from 2003 to 2008.
“This is an indicator that the market for rare cars has cooled off somewhat after a decade of sustained growth,” Dietrich Hatlapa, founder and managing director of the London-based research company said in an e-mail.
The IGA fund, chaired by the U.K.-based classic car collector and racer Ray Bellm, will be a closed-end partnership planned for seven years from the first closing date, set for March or April.
Investors will be asked for a minimum commitment of $500,000, Lancaster, a former chief executive of the auto dealers H.R. Owen Plc, said in an interview.
During a three-year investment period, the fund will aim to acquire a collection of between 20 and 40 trophy marque vehicles with distinguished race or ownership histories.
The Ferrari 250 GTO, Aston Martin DB4 Zagato, Ford GT40, McLaren F1, Shelby Daytona Coupe and Porsche 917 are among the models identified in IGA’s promotional brochure as potential “acquisition targets.”
Last year, a Ferrari GTO -- one of only 36 produced -- sold privately for $26 million, double the 1960s Le Mans racer’s price in 2005, IGA said.
“We feel confident about this subsection because of its rarity value,” Lancaster said. “We’re looking for iconic cars with low series production that have been prepared for competition. These are in private collections and rarely come up for sale.”
Nonetheless, IGA acknowledges that the market for classic cars can disappoint. Bellm included a Ford GT40 from his collection in Bonhams’s auction at the Goodwood Festival of Speed in July last year. The car, of the same type that won the Le Mans for four straight years in the 1960s, failed to sell at the auction against an estimate of 900,000 pounds to 1.1 million pounds.
“An investment in the fund involves a high degree of risk,” the IGA prospectus said, “and is suitable only for those investors of substantial means who have no immediate need for liquidity of the amount invested, and who can afford a risk of loss of all or a substantial part of their investment.”
IGA has a management structure of 11 named members, including the collectors Bellm and Mason. Cars will be bought by a group of unnamed experts through a mix of private and auction transactions, Lancaster said.
The cars will be regularly displayed, though not raced, at events such as the Pebble Beach Concours d’Elegance and the Grand Prix de Monaco Historique. IGA also plans to display the collection in Asia.
“Though China and India aren’t big players in the classic car sales at the moment, we see these markets opening up during the life of the fund,” Lancaster said.
Participants will be charged a placement fee of as much as 3 percent on their investment, plus annual management fees of as much as 1.5 percent based on aggregate commitments during the investment period and on the collection’s net asset value for the remainder of the duration.
The fund has a minimum target amount of $50 million, according to IGA’s prospectus, dated Dec. 8, 2010. So far, IGA has secured verbal commitments of about $15 million from potential investors, Lancaster said.
The fund is not aimed at U.S. investors.
“At IGA when initially establishing the fund,” Lancaster said, “a decision was made that the potential cost and regulatory issues for both covering the SEC and tax authorities would be far too great for the new fund, especially as we are trying to establish a new asset class as a financial investment.”
IGA intends to offer a similar product to U.S. citizens in the future, possibly by the creation of a separate fund.
“There’s an awful lot of money out there,” said John Collins of the Ascot, U.K., dealership Talacrest, which this month sold a 1963 Ferrari 330 LMB for $8.5 million to a European buyer.
“It could be difficult for a fund if there are a lot of people involved,” Collins said in an interview. “Car traders are a bit like art dealers. If they see a great profit in something, they’re not going to want to pass it on to the investors.”
Collins is currently courting investors for his own fund, devoted solely to the “best of the best” Ferraris. It has a target capitalization of 100 million pounds and will be formally announced within the next two months.
“I’m giving up dealing as soon as I start buying for the fund,” Collins said. “It’s too much of a conflict of interest.”
IGA information for investors (not accessible from U.S. servers): http://www.igafunds.com
(Scott Reyburn writes about the art market for Muse, the arts and culture section of Bloomberg News. Opinions expressed are his own.)
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