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This page notes some fine art investment funds that have got
off the ground or that are merely proposed.
It covers -
introduction
2007 and 2008 saw announcements that several art funds - often
badged as 'unique' or 'the first' - were being launched and
would provide fortunate investors with returns of around 15
to 20% along with opportunities for portfolio diversification.
In practice some of the announcements are unlikely to be followed
by substantive establishment of a fund, particularly a fund
that generates stellar results for investors rather than managers.
As of late 2008 it is clear that some promoters have struggled
to elicit the full investment to meet their targets, typically
reserving the right to walk away from the proposal if the
target was not reached over a period of six to 12 months.
examples
The experience of BNP Paribas - noted in the preceding page
- did not deter Société Générale
Asset Management (SGAM), which promoted a Luxembourg-based
US$25 million Alternative Investment Art Fund in 2007 - claimed
in November of that year to be "the first fund to be
backed by a bank" and expecting to raise US$150 million
in its second year, with 15% annual returns. SGAM meanwhile
announced it was raising money for an olive oil private equity
fund.
SGAM would "invest in modern art using private equity
techniques", in the basis that the art market is becoming
"more and more professional". The claimed rationale
for SGAM's trading is that art prices move in opposite directions
to bonds and shares, thus diversifying risk because when stock
markets fall art prices will supposedly remain steady or even
rise.
ArtVest, launched in 2004 by art dealer Daniella Luxembourg,
established offices in New York and London to solicit capital
from a small number of wealthy investors, claiming to operate
"like an art club".
Competitor Fine Art Fund (FAF), based in London, was established
by former Christie's finance director Philip Hoffman and aimed
at institutional investors. FAF reportedly planned to secure
US$350 million for "blue chip art" and to offer
"dividend income" by leasing works from its portfolio.
One Hoffman backer commented that "the idea was to capitalize
on the dot-com money that was driving up art prices"
in 2000. Hoffman indicated in 2006 that FAF's "compound
profit on assets bought and sold is forty percent", with
most works valued between US$500,000 and US$2 million. One
work was "priced at eight million dollars".
The China Fund, headed by former Sotheby's executive Julian
Thompson, specialises in oriental art (particularly Chinese
ceramics). The Art Collectors Fund, based in Switzerland,
reportedly planned to raise US$200 million but subsequently
wound that target back to US$50 million. Russian fund Aurora,
managed by Vladimir Voronchenko, aimed for US$100 million.
The Art
Trading Fund, promoted as an art hedge
fund, was launched in 2007 as a Guernsey-listed closed-end
company ("a cell of Art Investment PCC Ltd") under
the auspices of Chris Carlson's Artistic Investment Advisers.
It has been promoted as -
the first regulated fine art hedge fund ... an art trading
hedge fund focused on 3 to 12 month returns. The Fund buys
and sells art via its global network of dealers, renowned
artists, auction houses and galleries. Returns are maximised
through geographical price arbitrage and by removing market
inefficiencies. The Fund sources art from a bank of vendors
and sells through the network's pool of highly liquid buyers.
Using an objective investment process the Fund essentially
monetises the substantial margins of a gallery and art dealing
business - without the high fixed cost base of either -
and passes that 'alpha' on to the end investor. The investment
managers add additional value through asset allocation and
via a synthetic hedge that provides downside protection.
Carlson had a finance rather than arts management background
(he was formerly a trader at Deutsche Bank and UBS); associates
have backgrounds in art dealing and finance.
Reportedly it has sought to increase margins by cutting out
the middlemen and -
assembled
a stable of living artists, whose work it will sell to a
network of buyers. Since each artist produces a steady stream
of work, they can be viewed as income-producing assets,
with a proven earning base of around £2.5m a year.
In addition [it] says the fund will also buy art from sellers
suffering from the three Ds - death, divorce and debt. It
should also be possible to hedge the fund using share derivatives
of companies linked to rising art prices, such as luxury-goods
providers or Sotheby's itself.
It was reported in 2007 as taking -
a more clinical approach, exploiting good deals at estate
auctions held after divorces, deaths or bankruptcies, and
working closely with contemporary artists to track five-
and 10-year sales records.
In
July 2007 the New York Times noted a photography
investment fund established by London-based hedge fund WMG
under the auspices of financier Mehmet Dalman and managed
by gallery owner Zelda Cheatle.
The collection features works by Brassai, Rodchenko and Eve
Arnold, with WMG expecting that the fund will make returns
of as much as 50% over three years by buying and selling photos.
Cheatle commented "With the right expertise and attitude,
collecting photography is a good investment".
Hedge fund manager Cannonball offered the US$10 million Cannonball
Art Fund, centred on Warhol prints (supposedly "easy
to buy and sell because of the artist's recognizable name
and style"). Individual investors were required to put
up at least €100,000, paying a 30% performance fee if
the fund sells a piece.
In April 2008 The Art Newspaper reported the establishment
of the Meridian art fund and noted that ArtPlus, an "art
trading company" based in Luxembourg, was seeking investors.
ArtPlus, managed by Micky and Serge Tiroche, was reported
as seeking US$200m to develop the Tiroche family art trading
business, in which the founders hope to issue shares in three
to five years. The brothers reportedly believe that "long
term fundamentals have never been better for the art market".
Micky Tiroche runs a commercial gallery in north London and
co-founded the Tiroche Auction House in Israel. Serge Tiroche
has been a Citigroup banker.
Meridian Art Partners, founded by Andrew Littlejohn and Pamela
Johnson (formerly at auction house Phillips de Pury), aims
to invest in emerging art markets (primarily Asia, Russia
and the Middle East) on the basis that "culture follows
money" and "this is an opportunity to buy cheaply".
It is reported as seeking to raise US$100m by the end of 2008,
with a minimum investment of US$250,000. The fund's chief
investment strategist is Jeremy Eckstein, a statistician who
advised on the BRPF when at Sotheby's. Other advisors include
Iain Robertson (head of Art Business at Sotheby's Institute
of Art) and New York dealer Amy Smith-Stewart.
In September 2008 portfolio management company Dean Art Investments
announced the US$50m Dean Art Fund in association with the
Harbour Capital hedge fund.
The Dean Art Fund will -
use
the capital to buy artworks in market sectors with proven
historical track records. The fund will seek superior investment
returns by assembling a diversified portfolio of works and
by exploiting multiple channels for the purchase and sale
of art.
The investment consultant for the fund will be Jeremy Eckstein,
formerly of Sotheby's, previously art advisor to the British
Rail Pension Fund and an advisor to ABN Amro on fine art
funds. David Thomas, a former international banking director
at Lloyds TSB Bank, is chairman of Dean Art Investments,
while Gérard Moxon, who has 20 years' experience
in the financial markets with Lloyds Bank International
and Merrill Lynch International, becomes managing director.
It
will be an open-ended, Jersey-based incorporated cell company,
investing in -
a broad range of art categories, with an emphasis on Old
Masters, Impressionism, post-Impressionism and modern art,
avoiding sectors the fund's managers and advisors believe
will underperform the market.
"Individual
artworks owned by the fund can be leased to shareholders,
institutions, corporations and individuals through a separate
leasing company". Harbour chief executive Steve Williams
echoed noises from competitors in proclaiming that -
Art
as an asset class offers investors non-correlation to traditional
funds, although the management team intends to use our services
to operate the fund as an institutional-grade investment
fund, with the infrastructure and regulatory framework adequate
to the requirements of modern investors.
In
Australia The
Art Fund ("an Art Investment and Rental Fund"),
a unit trust associated with Australian Fine Art Management
(AFAM), has sought $25 million (with minimum investment of
$25,000). Solicitation of investment is expected to last for
12 months from February 2008, with the trust operating for
eight years or beyond and - as noted on the preceding page
- offsetting costs by renting items from its collection.
2008 also saw launch of the Gibraltar-based Castle Apollo
Fund, a 'Fund of Art Funds' expected to invest in a selection
of the reported 15 to 20 art funds in operation across the
globe. That selection was expected to include entities such
as the Sharpe Art Fund, the Middle Eastern Fine Art Fund,
the Fine Art Fund, the Chinese Fine Art Fund, Indian Fine
Art Fund and the IndexAtlas Art Industry Fund.
IndexAtlas, based in New York, also announced the launch of
a fund in 2008. Its Art Industry Fund, with a target of US$50
million, aims to generate an annualised internal rate of return in
excess of 35%. It will invest exclusively in businesses serving
the art industry, rather than the stuff you park on your walls,
and offers the usual aspirational statements -
The fund's primary objectives are to bring increased transparency
to art investing and to support development and expansion
of lasting institutions that will serve the art world and
the greater alternative investment market as a whole.
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