HighworthcitizenguyBy the High Worth Citizen Editorial Team
Ultra-high-net-worth owners hold roughly 20% of their wealth in passion assets, according to Knight Frank’s Wealth Report. That allocation is no longer incidental. After two years of broad correction, the Knight Frank Luxury Investment Index closed 2025 down just 0.4% — effectively flat — while remaining up 38.6% over the past decade. For family offices, the question has shifted from whether collectibles belong on the balance sheet to how they should be governed, valued and eventually liquidated alongside conventional stores of value.
Key Takeaways
- The Knight Frank Luxury Investment Index fell 0.4% in 2025, stabilising after two years of decline, and is up 38.6% over ten years.
- UHNW owners hold approximately 20% of total wealth in passion assets across ten tracked categories.
- Impressionist art led performance at +13.6%; watches rose 5.1%, with the Patek Philippe index up 12.1%.
- Global art sales reached US$59.6 billion in 2025, up 4%, with US auction sales up 23% — the first annual growth since 2022.
- Rarity and provenance now drive returns; the consumption end of luxury and the collecting end are moving in opposite directions.
What the Index Is Actually Telling Us
The Knight Frank Luxury Investment Index is a composite of ten investible categories: art, classic cars, fine wine, rare whisky, watches, jewellery, coloured diamonds, handbags, coins and furniture. Its near-flat 2025 reading conceals unusually wide dispersion beneath the surface, and that dispersion is the substantive story.
Impressionist art rose 13.6%, propelled by single-owner sales and by Gustav Klimt’s Portrait of Elisabeth Lederer, which sold for US$236.4 million — the highest price ever achieved at auction for a modern work. Watches gained 5.1%, with Patek Philippe’s Aquanaut and Nautilus references outpacing the category and the Patek Philippe market index climbing 12.1%. Other categories were flat or negative. A single index number, in other words, tells a family office almost nothing about the position it actually holds.
The broader market backdrop supports the stabilisation thesis. The Art Basel and UBS Global Art Market Report recorded global sales of US$59.6 billion in 2025, a 4% increase, with United States auction sales up 23% year on year — the first annual growth since 2022.
Why Family Offices Are Formalising the Allocation
Passion assets have historically sat outside the investment policy statement, treated as consumption rather than capital. That is changing for three reasons. First, scale: at roughly a fifth of UHNW wealth, the allocation is too large to remain unmanaged. Second, correlation: physical collectibles carry no counterparty risk and behave differently from listed equities during monetary stress, which is the same logic driving interest in HNWIs increasing gold allocations. Third, succession: heirs frequently do not share a founder’s collecting interests, and an unplanned estate transfer of illiquid objects is a reliable source of family conflict.
The discipline gap remains wide. Buyers are demonstrably more selective than they were in the 2021 cycle, favouring rarity, condition and documented provenance over brand alone. Objects without those attributes have repriced sharply, and many collections carry insurance valuations that have not been revisited since the peak.
What This Means for HNWIs
Treat the collection as a portfolio sleeve with a stated purpose. If the purpose is enjoyment, say so and stop modelling returns. If it is capital preservation, apply the same governance you would to any other illiquid holding.
Three steps are practical. Revalue independently — auction estimates and insurance schedules drift, and a decade-old figure is a liability in both directions. Document provenance to the standard a future buyer will demand, because the market’s premium for verified history is now the single clearest driver of dispersion. And plan the exit before the estate does: identify which categories have deep secondary markets and which do not, since liquidity in fine wine or a reference Patek bears no resemblance to liquidity in furniture or stamps.
Market Comparison
Not all passion assets serve the same function. Art offers the largest absolute values and the deepest headline market, but pricing is opaque and transaction costs are high. Watches and jewellery are comparatively liquid, with transparent reference pricing for major brands, though brand concentration is a real risk. Fine wine and whisky offer modest, steady appreciation and a functioning trade market, but carry storage and provenance burdens. Classic cars combine high carrying costs with genuine scarcity value. Handbags and coins occupy narrower markets where a small number of buyers set the price.
Against gold or listed alternatives, every category in this basket trades a return premium for illiquidity, opacity and holding costs. That trade can be rational — but only when it is made deliberately.
Risks and Considerations
Valuation is inherently subjective and index construction cannot capture the spread between exceptional and ordinary examples within a category. Transaction costs at auction commonly run to a meaningful share of hammer value on both sides. Authentication and title risk persist, particularly in art. Storage, insurance and conservation impose an ongoing drag that headline index returns do not net out. Cross-border movement of cultural property is increasingly regulated, and tax treatment of collectibles varies widely by jurisdiction — a material consideration for internationally mobile families.
The Bottom Line
The luxury investment market has stopped falling, but it has not returned to indiscriminate appreciation. Capital is flowing toward rarity and provenance and away from everything else. Family offices that govern their passion assets with the same rigour applied to private markets will find a defensible wealth preservation role for them; those that continue to treat the collection as decoration will discover its true value only at the point of sale.
This article is for informational purposes only and does not constitute legal, tax, financial, or migration advice. HNWIs and family offices should consult qualified professionals in the relevant jurisdiction before making decisions based on the information presented.