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coins, cars, ceramics and books
This page offers a perspective on art investment funds by
considering investment in coins, cars and other exotica.
It covers -
introduction
Insurance giant AXA proclaims
that
The
major areas of collecting were once thought fixed and unvarying.
Then the second half of the 20th century occurred. Today
thanks to durable glamour, historical necessity, potent
nostalgia, or simply keen interest, many classes of objects
from couture to cooking utensils, rock guitars to tin cars,
have acquired value and an active market fed by dealers,
curators, collectors - and AXA Art.
There
has not, to our knowledge, been an investment fund specialising
in couture, teddy bears or "cooking utensils" but
enthusiasts have contemplated funds concerned with other collectibles.
rare coins
Some sense of potential problems with exotica is provided
by unhappiness in the rare coin sector.
During 1986 Merrill Lynch, the largest US brokerage firm,
established the Athena Fund in conjunction with high profile
Beverly Hills dealer Numismatic Fine Arts. That investment
vehicle, subsequently badged as Athena Fund I, was promoted
as a limited partnership fund for "managed investments
in ancient coins and antiquities". It raised some US$7.3
million and, amid upbeat media coverage, was followed in 1988
by the Athena Fund II (deploying some US$30 million).
Emulation saw competitor Kidder, Peabody offer shares in a
similar fund centred on rare US coins, with claims that a
family of Kidder funds would draw in over US $40 million capital.
Kidder envisaged that its fund would be able to
make
large purchases without having to delay in order to raise
the necessary sums and will have financial resources of
a magnitude to attract numerous proposals for major transactions
and
that like the Merrill Lynch funds it would have a "market-making
capacity" through active trading in the short term to
support a longer "buy and hold strategy".
The Athena funds were promoted as multi-layered, with substantial
returns to investors mid-way through a seven or eight year
period and at the end of that time. During the initial three
years fund managers would emphasise short-term trading, purchasing
items for sale within two years. The aim was to generate profits
for immediate distribution to the investors. During the fourth
year, badged as a "transition period", the remaining
"trading assets" would be sold. The residual assets
would be sold the remaining three years: the "liquidation
period." That sale would include "major public auctions,
direct public sales and private transactions". After
two and a half years the managers reported a 36% net gain.
However, confidence was shaken by claims of mismanagement.
Items valued at US$3.3 million disappeared from one fund,
with an investigation by the FBI, and valuations were contested.
Manager Bruce McNall, whose misadventures are described in
his Fun While it Lasted: My Rise and Fall in the Land
of Fame & Fortune (New York: Hyperion 2003), filed
for bankruptcy owing a reported US$121 million to Credit Lyonnais,
US$40 million to the Bank of America and US$37 million to
Merrill Lynch. Faced by class action on the part of outraged
investors, Merrill offered some US$30 million compensation.
Kidder shuttered its fund; competitor Shearson Lehman Hutton
downplayed marketing of coins to 3 million customers through
its 11,000 brokers.
Undeterred, Avarae Global Coins listed on the UK version of
Nasdaq in 2006 as a publicly-quoted coin investment fund managed
by managed by Noble Investments (UK) plc, a UK coin dealer.
It gained £5.4 million to achieve long term capital
growth through purchase, holding and sale of high quality
and rare coins. It will purchase coins for short-term trading
opportunities and in the longer retention. The fund managers
receive an annual fee of 1.5% plus a performance fee of 20%
on returns greater than 10%. Merrill Lynch had a 14.1% stake
in Avarae as of late 2006, acquired for £1.1 million.
The Averae portfolio comprised over 600 coins at a cost of
some £2.5 million. The fund is domiciled in the Isle
of Man for tax minimisation.
Unhappiness with bits of shiny metal was evident after 2001,
after the Ohio Bureau of Workers' Compensation, bravely invested
US$50 million in rare coins chosen by Thomas Noe Inc. That
investment looked less precient after the manager was embroiled
in controversy over money laundering (resulting in a federal
prison sentence), over US$3 million of coins disappeared and
Noe was ordered to repay US$13.7 million.
cars
There are recurrent proposals for funds centred on 'classic
cars', perhaps unsurprising given prices paid for unique items
such the 1931 Bugatti Coupe (US$8.7m) and practices such as
'pickling' (where a collector buys a vehicle from the showroom
floor and wraps it unused in plastic or a dust-sheet in the
expectation that its value will soar).
Those proposals are problematical. The New York Times
questioned pickling in 2007, noting that the 1976 Cadillac
Eldorado (cost US$11,049 in the year of release and promoted
as a 'can't miss' investment) sold for around US$25,000 in
2007, somewhat less than the US$40,485 value of the original
cost after inflation. The same US$11,049 would be US$200,000
if it had been invested in a mutual fund that tracked the
Standard & Poor's 500 stock index.
books and manuscripts
'Rare Books As Investments' by Kenneth Hill in 47(3) The
Book Collector (1998) commented that
in
general, good rare books have increased in price at a rate
of about ten per cent each yea since 1961, which represents
a doubling every seven years. During the same period inflation
has averaged nearly five per cent each year, though most
of it occurred during the period 1970-82. During the same
thirty-five years, and because of the inflationary bulge
in the seventies, long term government bonds yielded about
seven per cent per annum and long term AAA corporate bonds
averaged around nine per cent. However, as already mentioned,
common stocks have increased in price about eleven times
since 1961, a rise of more than seven per cent per annum,
plus dividends of four per cent, for a total return of about
eleven per cent.
... during the period from 1961 to the present most good,
standard, rare books have doubled in price every seven years
or about twice the inflation rate. However, the Ornithology
books with fine, hand-coloured plates, have risen only at
about the rate of inflation, or five per cent each year.
Over a much longer period of time, rare books came down
substantially from prices paid in the prosperous 1920s,
as the stock market declined at least seventy-five per cent
into the 1930s depression, while Eberstadt's catalogue
prices of 1936-37 for the four standard rare books I have
footnoted have risen one hundred to two hundred fold to
reach today's prices. During the same period, 1936
to 1996, the price of oil, the most widely used world-wide
commodity, has risen from one dollar to about fifteen dollars
per barrel, and the price of gold has appreciated only eight
times to about 300 dollars per ounce.
'Monetary
Appreciation and Inflation-Hedging Characteristics of Comic
Books' by James Ang, Jess Chua & Walter Reinhart in 18(2)
Financial Review (1983) 196-205 echoes John Picard Stein's
seminal 'The Monetary Appreciation of Paintings' in 85(5)
Journal of Political Economy (1977) 1021-1036, noted
elsewhere on this site. Conservation of comics remains a major
challenge.
stamps
Enthusiasts since at least the 1890s have claimed that rare
postage stamps are investments and more recently have wondered
about the scope for stamp-based investment funds.
In August 2008 for example UK dealer Stanley Gibbons announced
a 39% rise over the preceding year in its GB30 index of the
rarest British stamps and indicated that its Fraser's 100
index of autographs has shown a 280% return over the past
11 years, before foreshadowing establishment of a stamp fund
in 2008.
Gibbons offers a range of "investment products",
including "guaranteed minimum return contracts"
that promise a minimum 25% gain over five years or 60% cent
over ten years.
The notion of a stamp-based fund has faced some criticism,
with observers for example questioning whether a large-scale
fund is viable (would returns be sufficient, would management
costs outweigh returns, would mere existence of a large fund
distort the market?) and whether indexes based on a handful
of 'super-premium' stamps are applicable to less stellar items.
Other critics have highlighted questions about forgery
or naughtily suggested that individuals would get a superior
return by investing in the dealer rather than in the coloured
bits of paper.
ceramics
Some dealers in ceramics have offered quasi-funds, with a
Chinese entrepreneur for example advertising an "Antique
Investment Scheme" -
The
scheme is essentially very simple. We buy items on your
behalf and offer them for sale. We share equally the gross
profit. All the overheads in selling your item are ours,
including the cost of exhibiting at fairs. The minimum investment
is £10,000.
Points regarding investing in antiques on a profit sharing
basis.
1. Items purchased on your behalf will belong to you until
sold at a satisfactory profit.
2. Your potential return will, in the normal course of events,
comfortably exceed bank interest.
3. If at any time you wish to take possession of your purchases
we would suggest you pay us a small profit of approximately
10%. This aspect of the arrangement is left to your descretion.
[sic].
In
practice although individual collectors appear to have generated
respectable returns through personal investment in porcelain
or other ceramics, particularly over a 20 or 30 year period,
there do no appear to have been any major ceramic-based art
investment funds.
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