Asset classes continue to dominate the majority of investment conversations – but how have these changed over time? And what will asset classes look like going forward? Partner and investment funds specialist, Jonathan Garcia from ISOLAS LLP, explores this topic.
An asset is 'a resource of economic value that can be controlled by a person, organisation or country'. While the paper definition hasn't changed, the ‘resource' that constitutes an asset has changed greatly.
Today, there are countless categories of asset classes. The ancient, such as gold; the historic, such as currency; the modern, such as classic cars; and the disrupters that are currently being rapidly adopted, such as cryptocurrencies.
As technology and ‘tastes' change, so do the assets with which people want to interact. The good news for asset holders is that there are now so many respected asset classes that their portfolios aren't just being diversified for better returns, but specifically tailored to the areas of interest of the investor.
No commentary on the evolution of assets would be complete without discussing the established ‘traditional' asset classes. Equities, bonds, property, foreign currency, and commodities are still, by far, the dominant players in the industry, holding a larger store of value than other classes. This is because they are all highly regulated with defined processes of exchange, ownership, and taxation. They are, for want of a better phrase, safe as houses.
However, while they are regulated, no asset class is risk-free. They are all traded on the open market and, as with all assets, are only worth as much as a buyer is prepared to pay. The prices of equities, bonds, commodities and currencies fluctuate continually and, while the value of property does not often shift quite as quickly, it still experiences large variation in value.
These characteristics are at the root of their appeal, and there is still the possibility for assets to appreciate. However, given the view that no asset class is risk-free, it is no wonder that new disrupters continue to appeal.
While not viewed as ‘traditional', there are several other proven asset classes that fall into the category of ‘exotic' assets. These include art, fine wine and spirits, antiques, as well as rare coins and stamps. These assets can be bought at both high price points and stored to further accumulate, or bought earlier in their evolution as a riskier bet as their value is anticipated to grow.
When put alongside the developing classes of assets, such as online gaming and film development, these assets can be grouped as ‘passion' assets. These being places for people to invest money into areas that interest them with the hope they get a return so in many cases this class doubles as a store and accumulator of assets, but also a hobby.
The assets of today
In recent years, the definition of an asset has evolved even further. Cryptocurrencies and digital assets stored on the blockchain are growing in popularity. They are increasingly becoming a part of established portfolios, as well as attracting a new market of retail investors into the space. While cryptocurrency was viewed as a risky bet, increased regulatory scrutiny in established jurisdictions, such as Gibraltar, has enabled it to become more trusted, and we are continuing to see institutional capital moving into the sector. Just recently we have seen Wall Street titan Goldman Sachs looking to recruit a VP to grow its digital assets unit. Crypto is the asset of the moment, and institutions are looking at ways to increase their stake in it. Organisations and jurisdictions that are embracing the trend look set to flourish in this chapter of the evolution of assets.
While it is important to understand where assets have been, and what the current shape of the market is, it is also important for all involved in the financial services industry to be mindful of what comes next. Staying ahead of the pack is often a huge advantage. You only have to look at PWC's 2020 Cryptocurrency Industry report to see that Gibraltar is small but mighty, having the third-largest number of crypto hedge fund managers, showcasing that early and dynamic acceptance of new asset classes can be beneficial.
The assets of tomorrow
In the decades before the advent of Cryptocurrency the idea of a line of code representing a unit of value that can be traded and exchanged for goods and fiat respectively may have sounded fanciful, but today it seems almost as natural as foreign exchange. It is always tough to predict what is on the horizon for the asset allocators of tomorrow. However, it is expected that, as in our daily lives, technology will play an ever-increasing role. Digital assets will become much broader in its meaning, encompassing more than just Cryptocurrency and a few niche tokenized assets. We will start to see huge ranges of traditional assets, from gold (already underway) to fine art and wine, tokenised, and available to trade.
However, this change may be far from the most significant. Many may think that the biggest evolution of assets in the future is their form, but in fact, it could be the access to them. Technology can democratise access to investing. Gone will be the days of needing to allocate large sums to get the best deals, we will see more people choosing to put away a slice of their earnings. This democratisation could be the biggest evolution in the history of assets, and frankly, with a bigger pool of investors, traders, and innovators, we will all be better for it.
Staying ahead in the ever-evolving landscape of assets challenges can be tricky, but managing your funds from established and respected jurisdictions with a reputation for quickly adapting to changes, such as Gibraltar can provide a head start. With trusted advisors such as the team at ISOLAS LLP on hand, we make the move as simple as possible, while also staying one step ahead of the pack. Making the move to Gibraltar ahead of the next great asset evolution has never seemed so appealing.
‘As featured in Global Banking and Finance Review'
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.