Tesla Inc. TSLA CEO Elon Musk’s recent $44 billion attempt to purchase Twitter Inc. TWTR has captured the front page daily in recent weeks. Financial backers of the deal have shown their confidence in Musk, contributing more than $7 billion in equity to the purchase.
Perhaps the backers, like “Warren Buffett of Saudi Arabia” Prince Alwaleed bin Talal, fellow tech billionaire and Oracle Corporation ORCL founder Larry Ellison, and some of the world’s largest alternative managers, are following Musk’s recent and more underreported play: own physical assets.
In a March tweet, the tech mogul advised his followers, “it is generally better to own physical things like a home or stock in companies you think make good products, than dollars when inflation is high.”
Whether at the grocery store, the gas pump, or in their investments, investors everywhere are feeling the burn of the highest inflation levels in decades. Because of the Fed’s efforts to curb rising prices, stock valuations have deeply plunged.
Physical assets are often viewed as investment safe havens during market turmoil because they can be insulated from the ups and downs of the market and may be resistant to rising prices.
The backers of the Twitter deal clearly prefer to own the company’s stock over dollars. But their portfolios are also diversified across billions of dollars of physical assets, enabling them to ride out market volatility. Here are some ways that they are using physical assets in their portfolios.
Former Oracle Corporation CEO Larry Ellison, who contributed $1 billion to the twitter deal, was once called by the Wall Street Journal “one of the nation’s most voracious consumers of trophy real estate.” It is believed that his total property holdings could exceed $1 billion.
Real estate is the largest and most well-known real asset. As Musk alluded to in his tweet, a real estate portfolio can be as simple as a primary residence or other residential property.
Though real estate prices are at their highest levels in years, there may still be deals to be found in certain markets.
Many of the investors Elon brought on to the deal are alternative asset managers like venture capital firms and hedge funds. According to Bloomberg, firms like these have been embracing gold as a store of value against price increases.
Gold is viewed as a portfolio diversifier and inflationary hedge because investors have historically flocked to it when markets are choppy. Also, it has continued to maintain its value through numerous market cycles.
Following a slump from 2013-2019, gold prices have continued to rise in recent years. Prices have come down since the beginning of the year, but remain near all time highs.
The former deputy head of Qatar Holdings, which contributed $375 million to Musk, is well known for his art investments. His purchase of Pablo Picasso’s Les Femmes d'Alger set the world record for a painting at auction when it sold for $179.4 million in 2015.
The asset class is viewed as a store of value to hedge against inflation because it can appreciate in value over time, and does not generate cash flows subject to purchasing power declines.
According to a recent Citi report, the $1.7 trillion asset class has also displayed resilience through various market conditions, including the runaway inflation of the 1970’s and the market turbulence of COVID-19.
As demand has risen for high-quality real assets and portfolio diversification, alternative investment platforms have opened the doors to this market. Thanks to these advancements, investors don’t need billions of dollars to get access to high-end, blue-chip works. Explore blue-chip art investment opportunities!
Investors Eye More Than Twitter
Elon Musk's recent advice to buy physical assets amid an inflationary environment is not news to the financial backers of his Twitter deal. These investors allocate large positions to their portfolios in real assets like real estate, gold, and fine art. Increasing demand has driven up prices in some markets, but also opened new doors for ordinary investors looking for a few deals of their own.
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