In 1974, a portion of BRPF’s capital was invested in more than 2,500 works of art over a six-year period. According to various sources, the BRPF was able to generate a compound annual return of 11.3% from 1974 to 1999.
After BRPF’s foray into the art fund arena, there were more than 50 proposals to create art investment vehicles, some offered even by some of Wall Street’s most prominent financial institutions. Such proposals never really got off the ground and other attempts that followed had disastrous results due, among other things, to overpaying for their artwork and failing to properly manage their operating expenses.
Today there are a number of funds that have been launched successfully. The most famous is The Fine Art Fund, founded by Phillip Hoffman, a former Christie Auction House executive. While The Fine Art Fund’s results are not publicly disclosed, the results are rumored to be quite satisfactory, and its managers have launched or announced plans to launch other funds focused on the Chinese and Indian contemporary art markets.
These types of funds are not offered to the general public but to investors for different reasons, but one of the most important in the US is tax exemption.
Most of the Art investment funds are managed by professional asset management companies, made up of a combination of professionals with experience in the art market and investment advisers more traditional private equity or hedge fund professionals. In addition, it is common for managers of these types of funds to have a substantial amount of their own capital invested in these funds, which allows aligning interests with investors.
Among the main tasks of the managers of these funds is the identification of potential acquisitions, raising capital for the fund, managing relations with investors, managing administrative compliance, displaying the fund’s investment portfolio via exhibitions and loans to museums, adequate storage and insurance, monitoring of the market and artists, and how it should be to manage the portfolio. Many of these tasks are similar to those of more traditional funds.
Unlike traditional mutual funds, art funds are not restricted by contract or by law in their choice of investment strategies, allowing them to employ a diverse basket of investment strategies, among which are: “buy and hold”(Buy and hold as long-term investors); geographic arbitration whose objective is to take advantage of the differences in prices of an artist in different locations; “artwork driven”Which tries to take advantage of the problems that affect the price offered to a specific work of art in matters such as provenance, title, condition, etc; art regional, how could it be Chinese art; vintage art; emerging artists; value intrinsic, as it is done in the funds value and that it involves investing in works by artists that the manager considers to be sold at large discounts with respect to their real or potential value; leverage strategies, that is, borrowing the art held by the fund and using said funds to acquire additional art that is expected to produce higher returns than the borrowing; art in special situations focusing on acquiring works that are at deep discounts due to bankruptcy or insolvency issues faced by collectors; co-ownership, where the manager acquires works in conjunction with external investors to share the investment risk and provide greater diversification to the fund’s portfolio; and others that we will not mention.
Most art fund managers employ diversified investment approaches, using more than one strategy simultaneously to obtain profits for its participants. And as a traditional manager would overweight or underweight various strategies and thus reflect the trends of the art market. They also establish entry and exit limits, or maximum size of the fund’s assets.
Art investment funds are a good way to democratize access to investment in art and there is also no better way to de-correlate a portfolio. However, the investment minimums are high, in some cases it is a truly long-term minimum investment duration, it is not easy to find profitability statistics and there could be illiquidity problems. Due to the above and despite the attractiveness of the investment, it is advisable not to allocate a large part of the portfolio to this type of funds, but between 5-10% at most.
There is an art index, the Artnet Index, which in the last 5 years has reached a profitability of 262.5%, while that of the S & P500 has been 93.48%. If we take a shorter period, say 1 year, the profitability of the art index is 164.6%, while that of the S & P500 is 76.12% and 57.11% of the EuroStoxx50:
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Among the options to invest in art are alternative funds, the 4 largest investment funds in art in the world are:
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Anthea Contemporary Art Investment Fund SICAV– Belonging to Anthea Art Investment AG, boutique investment manager and fine arts consultancy, covering the entire spectrum of the market, both post-war and contemporary art, impressionist and modern paintings and old masters. Launched in April 2013, the fund invests in contemporary and post-war artwork, including sculptures, paintings, and photographs. The shares are denominated in euro and Swiss franc. In calculation of the NAV it is semi-annual. For now the fund is closed and does not accept new subscriptions.
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Anthea Contemporary Art Investment Opportunities CLP: is the successor to Anthea CAIF, structured in accordance with the new Luxembourg tax directive LIR n ° 14/4 on limited companies that function as an alternative investment fund, it provides total tax neutrality for investors while allowing a substantial reduction of the annual administrative costs by taking advantage of a lighter regulatory regime, resulting in better investment returns for investors. The shares of this fund are denominated in euros and the NAV calculation is annual.
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Fine Art Fund Group: This group claims that it is capable of generating an average return of 9% gross, considering that it has management fees of between 1-3% and a 20% success commission – which are charged only if the fund has earned at least 6%. It is made up of four unregulated funds, such as the China Fine Arts Fund, the Middle East Fine Arts Fund, and the Fine Arts II Fund.
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Artemundi Global Fund– Created in 2008 by a group of collectors who understood the behavior and nature of the art market and soon opened it up to investors.
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