As broad interest in alternative asset classes grows, watches will undoubtedly attract more attention as a financial instrument. Last week, I discussed what I believe is the next wave of watches financialization – syndicated private equity funds, comparable to Masterworks and Vinovest in the art and wine markets. To go further on this topic, I want to think through some of the implications of a flood in investment capital for watches.
My sense is that such a dramatic shift – from hobbyist-mindset to investor-mindset – will send ripples across all levels in the watch world, including dealers, brands, collectors, and auction houses. For this article, I’m going to focus on the first two. After New Years, I will dedicate another article to the implications of increased financialization for collectors and auction houses.
To be clear, this is by no means an exhaustive list of implications in this trend. Rather, these are merely a few of the peculiarities that I’m interested in seeing evolve over the coming 5+ years.
For Dealers: Competition will get tougher
Watch dealers have already seen a huge surge in competition over the last decade. And it’s not simply a function of centralized, large-scale online marketplaces like Chrono24. For example, one of the more unexpected side effects of increasingly financialized watches is that customers, collectors and average consumers alike, commonly step into the dealer-flipper role. That means, in these market conditions, customers can often become competitors.
Unfortunately, a rise in investment capital directed at watches would only further inject more competition in the market for dealers.
Between dealers and funds, there’s an acute conflict of time horizon. That is to say, the operating timelines for investors and dealers are fundamentally opposite. Dealers want to flip inventory as quickly as possible, ideally holding nothing long-term. Investors, running a fund like Precious Time’s mentioned last article, are likely to hold timepieces for 5-10 years, depending on the specifics of the fund’s investor agreement. With enough capital, dealers might see huge portions of niche markets (F.P. Journe comes immediately to mind here) disappear for up to a decade. There will always be timepieces outside of the investor limelight, but competing head-on with funds will be very difficult. Funds will have deeper pockets, but more importantly, time will be on their side.
For Brands: Hope in speculation?
The value of a watch brand will increasingly be tied to the financial appreciation of its timepieces. We already see the onset of this in the watch community – it is not unusual to perceive of Patek Philippe, Audemars Piguet, or Rolex as “good brands” due to financial appreciation. AP’s CEO, Francois-Henri Bennahmias, has already framed the brand’s prestige in terms of financial value at a private collector’s event in Singapore, previously quoted here.
For brands in already winning positions, it is a great business strategy to embrace the financialization of watches (even when admitting so pains me). This is mostly due to the fact that distinguishing between products and brands is often challenging in the watch industry. Leaning into financial value narrative, these 4-5 high-demand brands have a real, tangible differentiator from competitors. And one that obviously resonates well with audiences as disparate as an unknowledgeable consumer and the most knowledgeable collector.
But where there are winners, are there not also losers? This is where things become more complicated. Though watch investment funds appear to have operated mostly conservatively thus far, focused on the aforementioned “winners,” my guess is that more capital will embrace significantly higher risk opportunities. That means, you could very well see big guns betting on the long-term success of talented independent watchmakers like Petermann Bedat, Remy Cools, or Christian Lass.
On this note, I have many questions. Will brands normalize selling directly to funds? It seems blasphemous to say yes. But if a single fund came to a small indie, ordered 5 unique pieces with favorable prices and payment terms, I don’t think there are many that will say no. And nor should they necessarily. This is where the value and impact of large investment vehicles becomes more nuanced. Though thinking positively about a surge of investment capital for watches does not come natural to me, this is where financial speculation might actually benefit the craft, ensuring young, talented watchmakers have the financial support needed to survive and grow.
Though my analysis in this article might seem a little negative, there is no fatalism in my words. This is very much a tug of war struggle between financialization and the lack thereof. Without doubt, this tension will persist for years, if not decades, to come. As is with everything, this issue is more nuanced than many of us in the diehard collector community want to admit. It is entirely possible, as mentioned, that an embrace with high risk alternative asset investing will support a number of otherwise under-supported independent artisans. Only time will tell how well these implications age.
What do you think are implications of this turn toward the full financialization of watches? Comment below or on Instagram what you think I’ve missed.
Happy holidays with the beast,
Dec. 25, 2020 – The watchmakers referenced in this article (Petermann Bedat, Remy Cools, or Christian Lass) are merely examples. In no way should readers read this as investment advice to purchase timepieces from any of those watchmakers. For clarity, I am not a financial professional. My interest in the financialization of watches is tied more to anthropology or social theory than investment management.