If anyone can afford to take the long view on investment, it’s surely the British monarch. Queen Elizabeth II on Wednesday passes Queen Victoria as the longest-reigning British head of state, after 63 years on the throne.
She’s seen 13 prime ministers, 12 US presidents and the invention of modern portfolio theory. Her predilection for horseracing is well known. But how’s her investment strategy?
She has little choice in asset allocation. The castles, the crowns, the 3,000-carat Cullinan diamond and much else are held in trust, and cannot be rebalanced into equities.
Read also:Â Queen must manage money better â UK lawmakers
Valuation is tough, too, with collections of 17th century royal headwear even less liquid than junk bond exchange traded funds.
Still, the portfolio has a useful bias towards inflation protection, and assets that appeal to the burgeoning super-rich. There is no index of crown jewels, but the sterling gold price has more than doubled in real terms. The diamonds have turned out to be less flashy, lagging inflation.
The real jewel in the crown may be the Koh-i-Noor, but the shining light of the Queen’s portfolio is the royal art collection.
Art has been one of the better performing assets of the past century, making 3 per cent a year above inflation, well ahead of bonds. According to Christophe Spaenjers, a finance professor at HEC Paris, the price of art at London sales has risen more than 500-fold in nominal terms since 1952, or 20-fold after inflation. Gilts rose five times after inflation, assuming coupons were reinvested.
Land has done well too. In this case an Englishwoman’s home really is her castle, but the Queen’s bias towards central London luxury housing (Buckingham Palace) has been a clear source of outperformance recently.
British housing has been a very good investment. The price of older houses matched the capital value of shares (not including dividends), rising 127-fold. Property is expensive to manage and much harder to trade than shares, though, and net rental yields, while not reliably measured, have probably been lower than dividends.
Overall, the portfolio is far too concentrated in the UK.
Britannia no longer rules the waves, and even the most patriotic investors have long since recognised that diversifying risk means holding foreign assets, too – even if these days royals cannot just send in troops to seize them.
* James Mackintosh works for the Financial Times of London – you can reach him on email at [email protected]
(c) 2015 The Financial Times Ltd.
The longer she reigns, the further her relative value falls
(Bloomberg) — Queen Elizabeth II becomes the longest- reigning monarch in British history today, and while her country might have lost influence in the world, she has ruled over an unprecedented period of wealth creation.
Besides the unwinding of an empire and the economic booms and busts, her time as head of state has been marked by the rise of the super-rich. The emergence of billionaire financiers, entrepreneurs and oil-rich sheikhs has left the woman who inherited one of the richest thrones in the world in 1952 a relative pauper a little over six decades later, albeit one with palaces, stables and an expensive stamp collection.
The 89-year-oldâs estimated personal fortune, largely inherited from her family, is about $425 million, according to an analysis by the Bloomberg Billionaires Index. Thatâs a mere 3 percent of the wealth of the richest Briton, Gerald Grosvenor, the Duke of Westminster. Europeâs richest woman, Liliane Bettencourt, has a $32 billion fortune.
âThe Queen is a steward of the monarchy,â said Sally Bedell Smith, author of âElizabeth the Queen,â a 2012 biography. âSheâs not as rich as everyone thinks she is.â
Doing the Math
The monarchy is still one of Britainâs most valuable institutions, with a value of 57 billion pounds ($87 billion) to the U.K., according to a report by brand valuation and strategy consultancy Brand Finance. The figure includes contribution to the economy through tourism and such things as the effect of royal babies on fashion brands.
Does this mean Queen Elizabeth has won the game of thrones? #longestreign
â Jamie Gemmell⢠(@GingerPower_) September 9, 2015
However, its 20 billion pounds of tangible assets, including Buckingham Palace, the Crown Jewels and the Royal Art Collection, are held in trust for future generations and arenât the Queenâs private property.
While precise details of her personal fortune are as closely guarded as the Crown Jewels, the Bloomberg Billionaires Index calculates she holds $75 million of investments, $160 million of assets inherited from her mother, personal property of $110 million, a $75 million stamp collection and the $10 million rated Royal Stud. The Palace declined to comment on the Queenâs net worth.
The value of her investment holdings is derived from a statement by John Colville in the Times of London in 1971, a director at Coutts & Co, the Queenâs bank, which estimated her fortune at 2 million pounds. Its appreciated value is calculated from an investment allocation of stocks, bonds, commodities and cash thatâs averaged about 5 percent a year over the last 25 years. Thatâs in line with returns typically targeted by similarly wealthy investors.
“In my experience, a conservative family portfolio would look to achieve a 5 to 7.5 percent annual return over this time period,” said Richard Wilson, chief executive officer of the Miami Family Office, a single family office with $500 million in assets.
The Queen inherited her motherâs 70 million-pound estate in 2002, according to a report by BBC News at the time. The reported value has been adjusted by the U.K.âs rate of inflation to account for any increase in the value of the assets.
Collecting Stamps
She also owns the Balmoral and Sandringham estates, which are valued based on discussions with London-based Charles McDowell, founder of prime real estate broker Charles McDowell.
The stamp collection of her father, George VI, is valued based on the sale of John du Pontâs stamp collection in June 2014 and discussions with Keith Heddle, managing director of London-based Stanley Gibbons Investments.
Her stable, which has about 25 horses in training each season, according to the British Monarchyâs official website, is valued based on sales data from horse auctioneer Tattersalls and discussions with thoroughbred analyst Nancy Sexton. The studâs stake in the stallion standing at Sandringham is valued based on guidance from bloodstock analyst, Bill Oppenheim.
Her Majesty could be worth more. Other assets, including a flock of racing pigeons, jewelry and a lifetime of gifts from visitors and admirers could add to her fortune. Moreover, the royal provenance of her estate could push its market value much higher. Even so, the Queenâs reign has seen her steadily slip down the rankings of Britainâs richest people.
Overtaking Victoria
As of Sept. 9, Elizabeth Alexandra Mary has been queen for 63 years and 216 days. She overtakes her great-great- grandmother, Queen Victoria, who cemented Britainâs position as a superpower with an empire spanning almost a quarter of the worldâs land area.
That status diminished after the two world wars before Britainâs economy went through a transformation from state-owned industry to the free-market capitalism of the 1980s and 1990s.
What followed was an historic era for wealth generation, with self-made billionaires building fortunes of more than $3 trillion since 1995, according to a May report by UBS Group AG and PwC. Thatâs seen the Queen leapfrogged by British billionaires such as Virgin Group founder Richard Branson and retailer Philip Green.
Property prices also skyrocketed, especially in London and the southeast of England as salaries and bonuses in the City financial district took off. The number of millionaires in the U.K., at least on paper, has jumped 41 percent to 715,000 in the past five years alone, according to a report by Barclays Plc.
Royal Palaces
The Crown Estate, which owns London property, the U.K. seabed as well as forests, wind farms and the Windsor Estate, reported net assets of more than 11 billion pounds in its latest annual report. Bloomberg didnât include the Queenâs 15 percent share of profits from the estate in her fortune because the money is used to cover palace upkeep, payroll and other costs of the Royal family.
At least the Queen is able to enjoy — if not own — the Royal palaces, land and the art collection, landmark assets that would be the envy of any billionaire. Buckingham Palace with its 775 rooms and 40-acre garden could be worth about 2 billion pounds were it ever sold, according to Ollie Hooper, founder of luxury residential broker Huntly Hooper.
âPriceless is perhaps more accurate,â he said. âGiven the nature of the asset.â
