By John Grgurich
The Motley Fool
Hey Bob Dylan fans: Are you tired of investments that leave you "Tangled Up in Blue"? Well, get ready to stop singing those "Subterranean Homesick Blues": Soon you'll be able to invest in the tambourine man himself.
Goldman Sachs (
GS) has been working with SESAC, a privately held performing-rights organization, to try to issue a bond that would be backed by performance royalties from Bob Dylan, Neil Diamond, and a catalog of other classic performers.
Like a Rolling Annuity
How does something like this work? This royalties-backed bond would be what's called an asset-backed security, or ABS for short. As the name suggests, an ABS is a security that's backed by assets, in this case financial ones, like loans, credit card debt, and leases (basically anything but real estate). Securities backed by real estate have their own name -- mortgage-backed securities -- but it's all the same idea: An enterprise raises capital by attracting investor money, and promises to pay those investors interest over a defined period of time, plus their original money back as well.
In this case, the asset backing the ABS would be the pool of cash generated by performance royalties. Because an asset, even a financial one, is seen as more tangible than, say, a company's future prospects, asset-backed securities are often seen as a safer alternative for investors, who otherwise would only be able to invest in more risky things, like corporate debt.
It's not the first time asset-backed securities have been backed by assets that were unusual or exotic: Previous assets have included timber harvests, time-share revenue, and cell phone-tower leases. But it's fair to say that none of those quite have the novelty factor of a bond backed by the performance royalties of Dylan and company.
(STORY CONTINUES AFTER SLIDESHOW)
SLIDESHOW: ALTERNATIVE INVESTMENTS
Browse through our gallery of investments that James Bond might make, the next time you've got a lump sum you're wondering how to invest.
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From Monroe to Superman: Alternative Investiing
Fine Art
If you like what you buy, investing in fine art can be relatively risk free. You'll need a minimum of about $150 if hunting for a small painting or photograph at an exhibition with the larger pieces costing $1,000-$2,000 – this is generally affordable if you consider your potential returns. With auctions and art fairs happening all over the country, all year round, fine art is also very easy to come by.
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From Monroe to Superman: Alternative Investing
Wine
With the ability to age well and fetch a high price at auction, red Bordeaux has always been a top choice for investment. Experts have reported that the best investors can see a 30% return within a year. The usual investment unit is one 12-bottle case from a vintage. With this is mind, at least if your wines do fall in value there'll be plenty to drown your sorrows with.
From Monroe to Superman: Alternative Investiing
Pop Memorabilia
This will appeal instantly to music fans and dedicated concert-goers. The "golden period" of music – 1955-1975 – accommodates Elvis, the Beatles, and Bob Dylan and successful investment in memorabillia surrounding these artists is a result of their enormous impact as musicians. The more personal the item, the larger the sale price at auction but pick and choose your bands carefully. A band which is successful now will not necessarily have the same fan base in a decade's time.
From Monroe to Superman: Alternative Investiing
Autographs and Film Posters
Christie's and Bonhams have thriving film memorabilia auctions where old posters for iconic films can fetch excellent returns. Posters for Star Wars films or those featuring Marilyn Monroe have been consistent top performers at auction. The re-sale value of an autograph varies according to the popularity of the celebrity but, in general, if he/she has died the value is much higher. Marilyn Monroe's autographs are currently worth between $16,000 and $38,000 each.
From Monroe to Superman: Alternative Investiing
Fine Art
If you like what you buy, investing in fine art can be relatively risk free. You'll need a minimum of about $150 if hunting for a small painting or photograph at an exhibition with the larger pieces costing $1,000-$2,000 – this is generally affordable if you consider your potential returns. With auctions and art fairs happening all over the country, all year round, fine art is also very easy to come by.
From Monroe to Superman: Alternative Investiing
Stamps
Stamp collecting has always had a huge following in Canada. An added layer of interest in stamps comes from postage marks which reflect postal, geographical and political history. It has been reported that prices of rare stamps have increased by 9.5% a year for the past 50 years. The Royal Philatelic Society of Canada is one of the oldest of its kind in the world. Membership includes invitation to regular meet and greet sessions with prominent collectors, so this is a great way to learn more.
From Monroe to Superman: Alternative Investiing
Coins
Like stamps, rare coins are a classic and viable investment medium and numismatists, or coin collectors, are growing in number. Beware if you are a young investor because as opposed to stamps, coins can be a very expensive hobby to enter into. Publicity officer of BANS, Peter Preston-Morley, has noticed a trend: "Most new collectors entering the field nowadays have built up sufficient disposal income." The Slaney collection of English silver coins was sold at Spink in May 2003 for around $1.6m. This sale set a new world record with some 50 of the coins – bought in the 1940s and 1950s for a total cost of $4000 – fetching $750,000, almost 200 times their original cost.
From Monroe to Superman: Alternative Investiing
Classic Cars
It is not wholly true that car owners face never-ending loss on their wheels through depreciation, road tax and insurance bills. Classic cars can appreciate in value at an incredible rate. At Bonhams this summer, the ex-Alfred Moss 1929 R-R 20/25hp Woodie Estate was sold for $37,000, $21,000 more the guide price. This type of investment costs not only money but also your garage space so it may not appeal to the masses.
From Monroe to Superman: Alternative Investiing
Gold
Investing in physical gold has had a universal appeal for centuries. There are several forms to choose from including bars, coins and jewellery and each have their pros and cons. For example, you can invest in bars and coins in relatively small amounts at a time which means these forms are accessible and affordable, but transaction can be expensive and liquidating a small amount, such as half a bar, is impossible. Two things all would-be gold investors should consider are the cost of insurance and safe storage.
From Monroe to Superman: Alternative Investiing
Comics
The rise in value of comic books is kick started by Hollywood producers such as Avi Arad and Kevin Feige who turned the comic strip Iron Man into big-screen material. A 1938 issue of Action Comics, when Superman first appeared, is worth more than $780,000 today – a remarkable increase on its original sale price of 10 cents. However, very few copies of the earliest comic strips survive so expertise is a must if going into this kind of investment. It is also important to remember that investing in comic books may not pay off in good time and it can take fifteen to twenty years for a strip to become valuable.
From Monroe to Superman: Alternative Investiing
Antiques
The best antique's collectors specialise in either a particular period or genre of item which helps to build up a level of expertise. Since there are a variety of places to find antique pieces, this kind of investment is definitely accessible. And, as is the case with fine art, you can enjoy your items before they head to the sale room. One disadvantage of investing in antiques is that it can be difficult to avoid counterfeits and reproductions. Build up a good collection of items, though, and you could earn a tidy sum.
From Monroe to Superman: Alternative Investiing
Junk by Any Other Name
According to the
Financial Times, the $300 million bond was initially supposed to be sold last month, but has been delayed until later this month. Goldman didn't comment on why, but it's clear the Wall Street titan wanted to restructure it. It's possible Goldman was having a difficult time finding investors.
Apparently, the bond as it was initially structured was only going to garner a rating of BBB- from the ratings agencies, only one notch above what's considered junk. Junk refers to corporate debt that's rated low due to concerns about the issuing company's future prospects and, ultimately, its ability to pay investors not only the interest they're due, or even repay their initial investment. The positive side of junk debt is, of course, that it offers a higher return on investment.
So Goldman is going back to the drawing board to restructure the bond into two separate tranches: one that will have a higher credit rating, and therefore pay a lower yield, and one that will have a lower rating, and therefore pay a higher yield.
Blowin' in the Bond Markets
Higher yields -- ah, there's the reason Goldman Sachs and other banks are trying out the prospects of such unusual bond offerings as this. In a world in which U.S. Treasuries are paying 2% or less, investors are hungry for decent returns. As such, investor interest even in boring old corporate junk has seen a serious resurgence of late. So why not give bonds backed by timber harvests, time-share revenue, or even the music of Bob Dylan a go?
How many roads must a man walk down before he can find a decent rate of return? If Goldman Sachs -- and maybe some of the other big Wall Street banks keeping their eye on this unusual bond offering -- has its way, the answer, my friend, may just be blowing in the bond markets.
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