Hiya
Do you like fast cars? Do you like investing in fast cars?
You’re going to love this one.
Stefan floated the opportunity in Sunday’s issue on car badge engineering, and there’s already been over $750k of interest, so I think we’re onto something here.
If nothing else, it’s an opportunity to post this photo.
[I’m going to include a lot of videos of Ferraris in this memo]
So what are we looking at?
It’s an investment in a portfolio of iconic Ferrari models, including a 328 GTS, Testarossa, and 355 Berlinetta.
In addition to expected appreciation, the deal leverages global arbitrage opportunities between the UK and US markets, with an expected average annual return of 19% and 25%.
Start your engines…🏎️
Table of Contents
Deal Basics
- Investment Size: £360,000 – £390,000 ($467k to $506k)
- Minimum Investment: $10k
- Potential IRR: 19.34% and 24.94% average annual gross return
- Deal Type: Asset-backed (Collectible cars investment syndicate)
- Deal Duration: 4 years
Deal Overview
This opportunity involves investing in Ferrari vehicles, including the Ferrari 328 GTS, Ferrari Testarossa, and Ferrari 355 Berlinetta.
The investment makes money in two ways:
- Asset appreciation
- Geographic arbitrage
These are highly coveted models in the collectible car market, recognized for their strong appreciation potential due to limited production, provenance, and iconic status in popular culture. The sales strategy hinges on purchasing in the UK, where high-spec left-hand drive (LHD) Ferraris are undervalued, holding them for four years, during which they are expected to appreciate, and then selling them at US-based auctions for a considerable premium.
What’s the opportunity
Collectible cars have demonstrated significant returns over the past decade. According to the Knight Frank 2023 Luxury Index, collectible cars have increased 185% over the last ten years. Additionally, in the UK, cars are classified as “wasting assets,” making them exempt from capital gains tax—a substantial tax advantage for UK investors.
This investment capitalizes on valuation discrepancies between the UK and US markets for specific Ferrari models. US emissions and safety regulations in the 1980s and 1990s reduced the desirability of Ferraris imported during those years, making European models far more attractive to American collectors. By purchasing undervalued LHD Ferraris in the UK and selling them in the US, we anticipate immediate gains of up to 40%.
Moreover, there is growing demand for 1980s and 1990s Ferrari models, especially those with manual transmissions. These models have appreciated by around 13% annually in recent years, with future growth expected at 11% per year. As ultra-high-net-worth (UHNW) individuals increasingly turn to alternative assets, this segment continues to offer a compelling opportunity for wealth diversification, particularly during periods of economic uncertainty.
Deal Economics
The target amount for this investment is £360,000 (approx. $450,000) to £390,000 (approx. $487,500), used to acquire the 328 GTS, Testarossa, and 355 Berlinetta. The potential value uplift comes from immediate price differentials of 10% to 44% between UK and US markets and an expected annual appreciation of 8% to 14%. In a more optimistic scenario, the compound annual growth rate (CAGR) could reach 13%, potentially valuing the collection at £759,029 (approx. $948,786) after four years. The projected gross return is 99.6%.
Market Size
The global market for collectible cars, valued at over $2 billion annually, is on a strong growth path. The post-pandemic surge in demand has particularly benefited rare and analog Ferraris, which are prized for their aesthetics and driving experience. According to the Knight Frank Wealth Report, collectible cars have appreciated by 185% over the past decade, positioning Ferraris as a lucrative alternative asset for appreciation.
Growth Potential
The key growth driver is the increasing scarcity of well-maintained, low-mileage 1980s and 1990s Ferraris. With Ferrari’s newer models focusing more on technological features, these classic models are in high demand for their raw, “pure” driving experiences. The growing interest in luxury collectibles among UHNW individuals and the emergence of younger wealthy collectors are expected to sustain strong demand for these cars.
Valuation
The portfolio’s valuation hinges on current trends in auction prices and private sales. Each car is chosen for its scarcity, provenance, and condition, with a target exit value for the collection set at £673,942 (approx. $842,428) under conservative estimates and up to £759,029 (approx. $948,786) in a more optimistic scenario. Historical trends for similar models indicate annual appreciation rates between 10% and 15%, supporting these projections.
TCC had each vehicle independently appraised and valued. Check out the report.
Risks
Key risks include:
- Market Competition: Competing collectors and auction houses may impact the final sale price.
- Macroeconomic Factors: A global economic downturn or liquidity crunch could dampen demand for collectible assets.
- Exchange Rate Volatility: The arbitrage opportunity relies on stable GBP/USD exchange rates.
- Maintenance Costs: Maintaining these vehicles at a high standard is crucial to preserving their value, but the management team has extensive experience with over 80 curated assets.
- Black Swan Events: Unexpected legislative changes or severe market disruptions could negatively affect this asset class.
FAQs
- What are the tax benefits for UK investors? Cars, considered “chattels” or “wasting assets,” are exempt from UK Capital Gains Tax. This provides significant tax efficiency for domestic investors.
- How liquid is the secondary market for these vehicles? The liquidity of collectible cars can vary. They are typically sold through auctions or private channels. While the market is not high-frequency, platforms like Sotheby’s and high-demand segments for rare Ferraris offer ample opportunity for sale at competitive prices.
- Are Ferraris in this class still appreciating? According to Knight Frank’s 2023 Luxury Index, collectible classic cars have appreciated 185% in the last 10 years, and specific Ferrari models have grown between 10.4% and 14.9% annually over recent years, according to auction data.
- Why does the UK’s LHD market offer such a good arbitrage opportunity? The UK market undervalues LHD Ferraris compared to the US. US emissions and safety regulations for imported Ferraris led to design compromises, making European models more desirable among American collectors. This arbitrage opportunity exists primarily because the UK generally favors RHD over LHD.
- What is the largest risk to this investment? The biggest risk is macroeconomic downturns causing a drop-off in collectible car values, especially if UHNW individuals liquidate their exotics due to broader financial issues. However, the specific vehicles chosen are historically resilient and backed by physical appreciation due to their rarity and iconic status.
Do you like the sound of this opportunity?
Interview with James at CarCrowd
After reviewing the memo, we asked James some tough questions.
Investment Performance
Wyatt – Can you provide audited financial statements or third-party verification of TheCarCrowd’s portfolio’s 15.7% annual return? It’d be great to see the track record in more detail.
James – We perform a complete market analysis on every asset once a quarter, taking sold prices and validating them using our proprietary scoring tool against the asset held to come up with a base valuation. This is then ratified and adjusted against live market cars. These valuations are considered directors’ estimates but can be externally validated by RM Sotherbys on request. Our previously exited cars exceeded their directors’ estimated valuation on sale by over 15%, showing that we value conservatively to ensure we meet or exceed investors’ expectations.
Past Ferrari Model Performance
Wyatt – What specific Ferraris in your current portfolio have matched the 10.4-14.9% annual growth rates you mentioned? Have any underperformed or lost value? It’s always good to get a sense of both outcomes.
James – The return rates for the relevant Ferraris in our portfolio are as follows:
1. Ferrari 355 Berlinetta = 12.8% ARR
2. Ferrari 328 GTS = 38.9% ARR
3. Ferrari Testarossa = 5.6%. ARR
NB. Our valuation of the Testarossa is very conservative for a low-mileage, classic-certified, concours-condition example.
Arbitrage Sourcing
Wyatt – How do you calculate the 9-40% arbitrage between the UK and US markets for these models? Can you share any recent examples of Ferraris sourced via this strategy that hit the upper end of that range?
James –
The summary table above shows the average values and average arbitrage.
We recently sourced a sub 2k km Ferrari 328 in the UK for less than £95k. It has a market value of over $240k, exceeding the average arbitrage above due to our stronger buying power than the retail market.
Data Sources
Wyatt – Are there any external pricing sources or indices you use to validate pricing for European vs. US Ferraris? I’m curious to know more about how you benchmark this.
James – Our benchmarks use data from reputable third-party sources on the sales prices of vehicles worldwide. Most notably, we utilize Glenmarch, Classic.com, and Classic Valuer. The benchmarks are then dual-controlled against highly regarded car sales houses like James Edition and Auto Trader to get live comparisons vs. sold valuation.
Increase IRR?
Wyatt – If there’s an immediate uplift, why not sell the cars immediately and invest the profits in new cars?
James – We like to fund cars that present an immediate uplift to give investors greater confidence in the investment opportunity and thesis. This works particularly well for new audiences. While there is an option to realize immediate returns, installing a hold period helps to gain further appreciation and ensure we identify the optimal time to sell.
Auction Details
Wyatt – Which auction houses are targeted for the exit strategy? Also, have you sold previous assets through them before, and if so, were the results in line with expectations?
James – We would target Sotherbys as the primary auction house as they have achieved record results for Ferraris, such as the F50, at the recent Monterey Car Week. We have a long-standing relationship with Sotherbys and personally know the Director of Auctions, Sholto Gilbertson, who sold the record-breaking F50.
Fee Structure
Wyatt – What are the expected costs for maintaining, storing, and insuring the assets over the 4-year hold? It would be useful to have a breakdown of the 2.5% per year you mentioned.
James – The percentage varies car-by-car as Storage and Insurance are fixed costs, but maintenance costs can differ by asset. Due to our existing infrastructure, which houses several collections of investment vehicles, we are able to offer considerable economies of scale.
Specifically, the costs break down as follows:
- Storage Fixed Cost – £50 per month per asset – total £600 per annum
- Insurance Fixed Cost – £300 per £100,000 insured
- Maintenance is a variable cost dependent on the asset, history, and service schedule. As we only source the best examples of any vehicle, little to no major work will need to be undertaken other than the specified work in the manufacturer’s service schedule (for example, Cam Belts every three years for a Ferrari).
This is then costed on an asset-by-asset basis.
On a £100k investment, we usually allow a 2.5% or £2500 budget to cover all costs.
The investment thesis outlines any special cases, and the Asset Under Management (AUM) is adjusted accordingly.
For context, equivalent storage at market rates would be over £200 per month, equaling 2.4% on a £100k asset. With the addition of insurance and maintenance, the AUM could be as high as 4-4.5%. This is why investors get a great deal with TheCarCrowd, as we control our own infrastructure to keep AUM low for investors and pass on the economies of scale.
Car Condition
Wyatt – In terms of the Testarossa, 328 GTS, and 355 in the collection, what’s the current condition of these cars? Are there any third-party inspection reports that confirm their status?
James – As part of our service to partners and investors, we provide an extremely rigorous asset condition and history check. We have sent the three condition/history reports for the assets currently under management, which showcase the scrutiny and procedure we follow for every asset.
The Ferrari 328 and Testarossa are among the best examples globally of these makes/models, with ultra-low mileage, deep service history, and concourse condition.
Gray Paul Ferrari recently inspected the Ferrari Testarossa and concluded that it was the best example of a Testarossa they had inspected. The Testarossa was one of just 200 cars entered into the London Concours, and the 328 was entered and paraded at the Concours of Elegance in the summer of 2024. The Ferrari 355 in the collection is a very strong, low-mileage example rated in excellent condition.
We will source concourse condition cars for Alts investors joining the Ferrari Syndicate with mileage under 20k to ensure maximum return on investment.
Exit Plan
Wyatt – Do you have a contingency plan for liquidity if auction values underperform or the sale is delayed due to market conditions? If so, what would that look like?
James – We have several alternative options to exit in addition to Auction. All options will be considered at the time of exit and selected based on maximizing the outcome for investors:
- Private sale. We have a vast global network of car collectors with whom we have placed assets and exits.
- Partner Platform Sale. We manage numerous collections for private investors and several investment platforms worldwide, so we can manage an exit into another partner platform looking to access a particular asset.
- Secondary Market:
- Option 1 Secondary Market: Should Alts be providing the SPV, TCC can provide formal quarterly valuations of the asset, which can feed a secondary market of share trading to offer liquidity to investors who would like to exit (even if the right thing for the overall audience is to hold).
- Option 2 Secondary Market: If TCC provides the SPV structure using our Syndicated investment process, we can provide liquidity via our bulletin board-style secondary market.
- In both cases, we will support marketing the available shares to our existing registered audience of investors.
Economic Sensitivity
Wyatt – How have Ferrari models performed historically in downturns? I am particularly curious about how things played out during the 2008 crisis or other market shocks.
James – Access to robust data from 2008/9 is difficult to obtain as most classic car data sources started records around 2016. However, articles like the one in the New York Times in 2009 show that the crisis impacted collectible cars less than expected or other investment types.
According to the HAGI index, collectible cars saw a more modest 16% decline in the same period, showing their resilience to mass market movements.
Data from the 2021 COVID Crisis shows an increase in prices across the collectible car market, with assets such as the Testarossa, 328 GTS, and F355 Berlinetta up 13%, 9%, and 9%, respectively, compared to 2020 values. Scarce and popular assets are the most resilient and remain uncorrelated with individual countries’ fiscal situations due to their global appeal.
Tax and Regulation
Wyatt – You noted the ability to import these cars to the US with a 2.5% duty—does your team handle all the paperwork and logistics on that end? I just want confirmation on who manages that process.
James – We support all export logistics, including transport, registration, taxes, etc. We have experience importing/exporting assets, including cars sent to the USA, South America, and Europe and cars imported from the US.
Sharia Compliance
Wyatt – You mentioned that the investment is Sharia-compliant—could you clarify what steps are taken to ensure this and whether there’s any certification involved?
The Car Crowd is certified as Sharia-compliant by the Shariah Review Bureau—certificate number TCC-3787-01-01-03-24.
That’s all for today. If you have any questions, please shout. If you want to get involved, you can Express interest here 👉