MechunkCreek Racing Classic Car Fund
The MechunkCreek Car Fund is looking to be launched in 2019, driven both by a passion for cars and for uncorrelated alternative assets. The philosophy of the blue chip Car Fund is simple; buy well-selected blue chip investment grade cars only (Maserati, Ferrari, Aston Martin) at attractive prices. This will be achieved due to the Funds connections in the very thin upper scale market for blue chip vehicle’s which is very much a closed shop. These prospective cars having had a thorough evaluation by an independent expert, and sell them later at a profit. The fund is not focused on any specific make or production year, but emphasis is clearly on low production numbered blue chip vehicles only, cars from various periods. Holding times vary vastly but the fund does not fall in love with its investments. Some cars the founder of the fund has owned would have enabled the fund to realise a healthy double-digit profit in as little as one year, while others will remain in the fund for up to a few years. Also, and perhaps of more interest for most, against a small fee fund investors may borrow and drive some cars in the fund at specific high profile events and or for other use as agreed with insurance and other factors being taken into consideration . If anyone asks you can truthfully say it is your car, as it is part of the fund you are an owner of. The Classic Car market is reflected in HAGI Index (Historic Automobile Group International) www.historicautogroup.com and the rise in value of blue chip cars have been significant.
The Mechunk Creek Car Fund was created by the founder who has been racing important cars for the last thirty years both in the USA and Europe including blue ribbon events such as Goodwood , Silverstone , VIR , Watkins Glen to name a few , including racing with some keen amateurs such as Paul Newman, as well as ex professional drivers such as Brian Redman ; in the early days of the old car racing scene, old racing cars and sports cars though valuable by standards at that time , is not even close to current values for the best cars today . It would be the intention of the fund to run the cars at those blue ribbon events and arrange hospitality and tickets for members of the fund to see the cars race, in the same way horse racing syndicates arranges for participates of the syndicate to view their entry at a horse race. The Founder of the Fund has a warehouse both in the USA and Europe full of old car parts, having been acquired in the 1980’s and early 1990’s including Maserati racing engines, gearboxes, transaxles, being bought up from major collections that decided either to disperse their assets at that time , including the DuPont family where much of the parts in the current collection where purchased. This means many racing cars that where disassembled at the time, as work in progress and or stalled restorations, over the years can be reassembled using the hugely increased resources in the classic car industry which where not just available thirty years ago . Current value of potential finished cars from the parts in storage from the current inventory would exceed US$2,000,000 at the low end. Completed cars would be in region of US$3,000,000.00 plus.
Obviously Classic cars are not correlated to the bond market or stock market, though they are affected by the feel good factors of collectors and investors from trends in both those markets. Risk factors to the Fund would be exposure is currency risk, mitigated by buying classic cars in different values at different geographical locations. With diversification, the fund holds different types and years of cars, storing them at the moment in three different locations worldwide, which will help spread that risk. Each car that we buy under market price is fully insured against damage at its true value.
Hedge funds in the exotics space often struggle to get investor interest on account of the performance smoothening that may happen. Given the lack of liquidity inherent to this kind of investing, how does the fund price its asset? What are some common worries that your investor may raise on this accounting specific aspect?
The cars of the fund are valued from an independent expert such as Classic Data or Hagerty. The liquidity of a classic car is not a problem, as you can always sell a classic car through auctions, the internet, or by private treaty through the classic car dealer networks – the only problem being that selling quick may not achieve the price you were aiming for.
The ten most expensive cars sold in 2016 were in the range from US$21 million to US$3.2 million. The fund is marketed to all investors that are searching for diversification with no correlation to the finance markets, as collectors are willing to subscribe to the fund in kind. This kind of subscription offers many advantages to the collector to know what they are investing in.
How does the fund plan to scale up its operation and what kind of natural limits exist to this?
The global classic car market is based around restorers, vendors and private collectors, dealers, auction houses and associated events. Grassroots support of the market comes from magazines and clubs where steady demand is produced. This moves through specialised dealers and collectors and onto auction houses and more recently to classic car investment funds. The market is relatively well established and has attained a certain maturity.
How well has the fund been received by investors so far?
Its early days, but the prospective investors are family office, banks, asset managers and individuals. The biggest investors at the moment in this sector are asset managers, followed by a bank’s. Investors look at The Classic Car Hedge Fund Industry as a diversification not correlated to the stock and or bond market for their portfolio.
What is the future for the classic car space and what challenges and opportunities do you foresee over the next five years?
The classic cars along with fine wine have been the most profitable asset in the last ten years and this will be the case in the next ten years. Just think about the BRIC nations, the baby boomers, every year there are more and more billionaires and China will soon open its doors to the import of classic cars – don’t forget that classic cars are limited. The great thing about classic cars unlikely property and other assets being fixed by geography, classic cars can be moved swiftly from one location to the next with little hindrance from government and or geopolitical forces, which make this a very liquid asset like gold and attractive to the high end investor. For example David McNeil, the WeatherTech founder and CEO has just joined one of the most exclusive clubs on Earth after paying a reported $70 million for a Tour de France-winning 1963 Ferrari 250 GTO. The vehicle, with the chassis number 4153 GT, is believed to be one of the most expensive car in the world. In many countries their is very little value added tax on old cars at this time making them an ideal export commodity.
It’s the Funds view that the first five years annual positive gains of over 5% every year can easily been achieved, but the aim is at 8% to 12% and this will be achieved in the next few years once the fund has more assets under management (AUM). The fund administration costs remain the same, but car maintenance costs will be lower as the garage and oil change costs for a US$10 million car and a US$100,000 car are exactly the same. Mechunk Creek Car Fund is lucky that it has a dedicated set of specialist mechanics and fabricators it can call upon at any given time to complete a prospective project.