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musical instruments
This page offers a perspective on art investment funds by
considering investment in musical instruments.
It covers -
The
following page considers funds for investment in Roman
coins, classic cars and other exotica.
introduction
It was perhaps inevitable that other cultural commodities
have attracted the interest of fund promoters, as in principle
there is little difference between a Ming vase or Rothko canvas
and a Guarneri cello, a unique Athenian gold coin or the ruby
slippers from The Wizard of Oz (US$666,000 in 2000).
All are objects of desire that are perceived as likely to
appreciate in value and to be saleable to a global audience
in a way that reaps substantial rewards for both the investor
and the fund manager.
In practice although exceptional coins, musical instruments,
have increased in value - and for a fortunate few have outpaced
basic stock indices, although not all shares - the past thirty
years have not seen the emergence of a large number of funds
that specialise in trading antiquities, 'old master' musical
instruments, classic cars, film memorabilia or similar artefacts.
instruments
Sales of particular items, such as the US$2.08 million paid
for John Lennon's upright Steinway piano, have gained media
attention but have not resulted in establishment of funds
that are run by professional managers and that attract substantial
capital from insurance companies, pension funds, institutions
and wealthy individuals seeking an alternative to investment
in real estate, hedge funds, bonds or shares.
Questions about the depth of the market (few players, few
sources of independent expertise, little definitive data about
trades) and liquidity mean that investment in musical instruments
is likely to remain a curiosity rather than a meaningful rival
to investment in financial instruments.
Prices paid at auction and in private sales for exceptional
instruments - in particular violins and cellos - have increased
sunstantially over the past forty years.
One observer thus noted that maestro Ruggiero Ricci for example
bought his Guarneri del Gesù violin for around US$35,000
in 1957 and sold it for US$3m in 1999. (Investing that US$35,000
in IBM or Xerox stock rather in the S&P 500 would of course
have produced a greater return, albeit less pleasure to the
ears of listeners.)
That increase has been attributed to the interaction of -
- scarcity
- Guarneri, Stradivari and their peers only made so many
instruments
- increased
demand - journalists and promoters for example make much
of supposed demand from China, although that nation does
not appear to have acquired 'old master' instruments on
a large scale
- status
- in some circles owning a unique instrument confers greater
mana than owning yet another yacht, sportscar or island
- perceptions
that prices will continue to increase and indeed soar.
It
has been reflected in media coverage that focuses on prices
received for exceptional items rather than all 'old master'
instruments, partly because some items are appreciating much
faster than others and partly because there is little independent
information about trade in items not associated with particular
masters.
Advocates of investment in instruments
thus typically point to sales of items from the Guarneri,
Amati and Stradivari family workshops, for example -
'Lady
Tennant' Stradivari violin - US$2.03m (2005)
'Kreutzer' Stradivari violin - US$1.58m (1998)
'Mendelssohn' Stradivari violin - US$1.78m (1990)
'Bonjour'
Stradivari cello - US$1.03m (1999)
One
US fund promoter announced that
For
the last forty years, the value of great violins has increased
dramatically. Being that they are 'tools of the trade',
they are not prone to the fluctuation experienced in the
fine arts market. This consistency makes the purchase of
great instruments historically one of the most secure of
art investments. Moreover, the use of one of these classic
treasures can change the course of a career. We encourage
individual and institutional investors to explore including
stringed musical instruments as a separate asset class in
investment portfolios to preserve the purchasing power of
scarce capital ...
A conservative estimate of the annual appreciation of a
great violin used to be between 5% and 10%. However, already
starting in the late 1970's, due to the globalization of
Western economies, the influence and activities of foreign
organizations and individuals in local markets have caused
violin prices to rise more rapidly. There has been a steady
increase in the rate of appreciation of great instruments.
Since examples set the standard in the market, Machold Rare
Violins looks to the sales prices of extraordinary violins
to evaluate the current rate of increase. Today, we put
the average annual percentage of appreciation between 10%
and 15%
rationales
In responding to the question "Why should someone
consider an investment in a rare stringed instrument as a
part of their investment activities?" it argued -
-
Insurance. An investment in a rare stringed instrument can
be thought of as an insurance policy whose benefits include
a greater likelihood of capital value maintenance. The performance
return is likely to have a low correlation with other known
financial instruments such as stocks, bonds, gold, currency
or real estate.
-
Diversification. Investors currently investing in stocks,
bonds and real estate can achieve immediate diversification
of owned assets with the purchase of a portfolio of rare
stringed instruments without compromising financial returns.
-
Financial Rewards. The potential financial returns of rare
stringed instruments are compelling.
-
Social responsibility. Investment in quality rare stringed
musical instruments can encourage the development of musical
talent and finer cultural art by providing talented musicians
with access to otherwise prohibitively expensive instruments.
Such investments are socially responsible since they help
to ensure that rare stringed musical instruments remain
in active performance and accessible for public appreciation.
-
Insurability. Unlike stocks and bonds, investments in rare
stringed musical instruments are insured for their value
against loss caused by damage, fire, theft or destruction.
Insurance protection of rare stringed musical instruments
is similar to the protection provided on commercial and
residential real estate. However, insurance covers full
value of musical instruments while in real estate situations
land is often not insured. Generally, the par value of stocks
and bonds cannot be insured
In practice things are not quite that simple. There is little
independent evidence of a real investment market, particularly
in the short term. Tax regimes vary considerably but it appears
that individual investors are making most money by holding
instruments for around ten years and then donating them to
an institution, gaining both kudos as a visionary arts patron
and cashing in on appreciation in price of the instrument
over that period.
Appreciation has not been standard. A 1999 study by Kristin
Suess suggested that investment in violins during 1960 would
have outpaced Treasury bonds and the S&P 500 by 1996.
As noted above, prescient investment in particular high tech
stocks would have generated better returns and major gains
are now more difficult because instruments are no longer under-valued.
High prices mean that only the most commercially successful
artists can afford to buy particular instruments. Many have
accordingly relied, as in the past, on items loaned by individual
patrons, foundations, orchestras and even government 'instrument
banks'.
Performers typically pay insurance (usually around 1-2% of
the item's value) and maintenance. They are usually also required
to undertake a certain number of public/private performances.
Use of the instrument is essentially at the owner's discretion.
In June 2008 the Music Council of Australia (MCA)
launched The National Instrument Bank, "offering wealthy
individuals and corporations the chance to buy instruments
as investments then loan them to musicians". Donations
to the Bank will be tax deductible.
The idea of instrument banks is not new. The Canada Council
for the Arts Musical Instrument Bank (MIB)
for example was created in 1985; others are discussed in a
2003 report (PDF)
by the International Federation of Arts Councils & Culture
Agencies.
They typically involve gifting of instruments/money to a public
agency, generally rewarded under the nation's tax regime.
In practice there appears to be little interest among investors
in building instrument collections for resale and 'parking'
those instruments with a bank pending the requisite appreciation
in value.
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