Investing in Sneakers as an Asset Class
- Sep 21, 2023
In this episode of Engaging Alternatives Spotlight, Elana Margulies-Snyderman, Director, Publications, EisnerAmper, speaks with Howie and Jason Schwartz, father and son and co-founders of Always Legit, which invests in sneakers as an asset class. The duo share their outlook for sneakers as an asset class, including the greatest opportunities and challenges and more.
Elana Margulies Snyderman:
Hello and welcome to the EisnerAmper podcast series. I'm your host, Elana Margulies Snyderman. With me today are Howie and Jason Schwartz, father and son and co-founders of Always Legit, which invests in sneakers as an asset class. Today, the duo will share with us their outlook for investing in sneakers as an asset class, including the greatest opportunities, challenges, and more. Hi Howie and Jason, thank you so much for being with me today.
Thank you for having us. My name is Jason Schwartz. I'm the CEO and co-founder of Always Legit.
And I'm Howie Schwartz and I am the COO and co-founder, and we really are looking forward to the conversation.
Well, happy to have you both here. So to kick off the conversation, tell us a little about Always Legit and how you both got to where you are today.
So Always Legit is the first and only platform that allows investors to participate in the $10 billion secondary sneaker market, which is projected to grow to 30 billion by 2030 according to a recent report by Cowen. We leveraged proprietary data, deep industry relationships, and a physical custody platform for luxury assets. At Always Legit, we are introducing the market to what we call sneakers as an asset class, just like our t-shirts by opening up a previously inaccessible global market to deliver diversification that is truly uncorrelated to other asset classes.
I recently turned 19 and I started reselling sneakers at 13 and scale it to a multiple seven-figure business. Growing up reselling sneakers showed me how fragmented the market was with so many small independent players. I wanted something different than the rest of the crowd who were just flipping sneakers. We are not sneaker resellers, we are long-term sneaker investors at Always Legit. I focus on product sourcing and acquisition and managing authentication.
So on this call, I'm the gray hair in the room and I've been raising capital for startups for 20 plus years and I've been fortunate to have two venture backed exits. I've also been an active angel and venture investor and also been involved in the democratization of the financial markets for the past 10 plus years. So I originally saw the opportunity along with Jason to really bring professionally managed capital to what is a $10 billion market today, projected again to grow to $30 billion. And in Always Legit, I focus on compliance and investor relations.
So Howie and Jason, investing in sneakers as an asset class is definitely a very esoteric investment and would love to hear both your thoughts on why they're such a viable investment compared to other investments.
So what we see as the opportunity lies in the fact that the 60/40 portfolio construction is truly dead. If you look at high-net-worth individuals and family offices, today, they already have much higher than a 20% allocation to alternative assets, which includes things such as wine, art and crypto. And we feel that luxury assets with a focus on sneakers is really truly an interesting way to add both diversification in an uncorrelated way that also has much lower volatility.
What we're experiencing in the macro market today is really the greatest wealth transfer in history as we see both millennials and the newly mass affluence who do not want to invest in traditional mutual funds. They want to invest in passion and identity investments, and we feel that's the opportunity with building sneakers as an asset class.
Investment grade sneakers have been turning 20% to 30% a year over the past five years. What is important to note in our model is we consider only 1% of sneakers to be considered investment grade. Limited edition and rare sneakers are a store of value. An important milestone in the industry, both Sotheby's and Christie's now have dedicated sneaker teams and 55% of new auction clients for Sotheby's came from sneaker options and are under the age of 40, which is a key demographic.
And more specifically Howie and Jason, where do you see some of the greatest opportunities in this space and why?
The $10 billion secondary sneaker market today, projected to grow by 30 billion by 2030, is very fragmented and inefficient. The opportunity to bring institutional capital and professionally manage for the first time and make sneakers an investible asset class.
And we think the other part of the opportunity is that this is truly global. If you look at things like baseball cards or trading cards, those are really a very U.S. focused market, which is dependent on the U.S. consumer and the U.S. economy. When we think about sneakers and luxury a little bit in a broader sense, it really truly is a global opportunity. What's very interesting is the majority of Nike's business is actually international and each region across the globe, anywhere from Malaysia to Singapore to of course, China, Japan, and throughout Europe, each one of these markets has their own independent resale marketplace focused on sneakers that have well over a billion dollars in GMV or gross market value each in each one of those markets today.
Howie and Jason, I'd love for both of you to address some of the challenges you face investing in sneakers as an asset class.
Authentication is the biggest challenge in our industry. Tens of billions of dollars of fake sneakers flood the market each year. We have built a team of leading sneaker authenticators. Sourcing inventory is also very challenging. The average investor does not have the time, resources, or know-how when it comes to what to buy and when to sell. We've professionally managed the full life circle for our investor sneaker portfolios.
Another challenge is really building and defining a new asset class. Convincing people to invest in sneakers is truly an interesting challenge. When we started working on this five years ago, and I started sharing this with some of my friends in the VC world and hedge fund world, they really thought I was crazy. But what's really interesting is this has gotten actually to be much easier because today most people know someone or have a kid that's resold sneakers or have entered a sneaker raffle and watch the price premium really skyrocket. So when we start to present sneakers in financial terms, we're actually getting a really warm reception that wasn't possible even a few short years ago.
Howie and Jason, we've covered a lot of ground today and wanted to see if there are any final thoughts, plans you'd like to share with us.
We are focused on growing AUM and to build on the behalf of our investors, one of the largest collections of sneakers in the world, all secured in custody and professionally managed. Always Legit will start costing other luxury assets in the future for investors as well.
Well, I thought now would be a good time, love to check out some of the sneakers.
So this is a Jordan 4 Gator. This is only given out to the college, only given out to the basketball and football team. Same thing right here, UNC. This is one of the most rare ones just due to the fact that Michael Jordan played for UNC. This sneaker is around 10,000. We have a Birds of a Feather Tinker Air Max. These are all numbered and signed by Tinker Hatfield, the creator of Jordan. These trade for around $15,000. And then we have a very rare exclusive Travis Scott Friends and Family. This shoe sells anywhere from $35,000 to $40,000.
Well, Howie and Jason, I want to thank you so much for sharing your perspective with our listeners.
Thank you for your time.
Thanks for the opportunity.
And thank you for listening to the EisnerAmper podcast series. Visit eisneramper.com for more information on this and a host of other topics. And join us for our next EisnerAmper podcast when we get down to business.
Transcribed by Rev.com
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Elana Margulies-Snyderman is an investment industry reporter and writer who develops articles, opinion pieces and original research designed to help illuminate the most challenging issues confronting fund managers and executives.
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