Art Investment

Art Investment Funds

I have always been curious to see more closely how art hedge funds operate and make their money. I've recently completed some research on this topic and the results are below.


Interview with fine art hedge fund manager Justin Williams.
He is unconventional short-term art trader (maximum holding of three yrs, Avg. holding only three and a half months), and he believes art market has enough depth and liquidity to enable him to use that strategy. For quick sell back, he focuses on living young, upcoming artists’ works. He mentions art market withstood the global credit crisis, but major geo-political risk (which affecting global economy) is biggest threat to the art funds.

Great resource on the different motivations to invest in art. This article describes who individuals or hedge funds often invest art because of a wide range of reasons which can include diversification, capital appreciation, economic slowdown, speculation, taxation, philanthropy, and social status. View this resource by clicking here.

Article says speculating on art (indirectly betting on art price through art fund) is dangerous idea. Because “The problem with art is that it is essentially counter-culture and difficult to predict”


Hedge fund turmoil tars hot art market
Article explains about how some hedge fund managers are borrowing against their massive art collection as collateral to resolve cash problems.(also, selling their possession) “300 managers with a median net worth of more than $60 million, found the average respondent spent nearly $4 million on fine art in 2005.” So, article questions if art market price will hold up during this time of hedge fund turmoil.


Article -Hedge-Fund Experts Put Art in the Deal
Hedge fund managers are applying their trading instinct into buying and selling art items. Some managers intentionally buy and invest in certain artist to bring up their value of the work, thus creating bubble in art

Hedge fund managers turn their attention to new asset class- vintage guitars.
“a London investment firm, is expected to launch the Guitar Fund. Set up as a hedge fund, the Guitar Fund will seek investment returns by buying rare and vintage electric and acoustic guitars (steel-string and classical), plus mandolins, banjos and amps.” Strategy to increase value – lending it to famous artist in tours etc. “The basis for the fund’s idea is Vintage Guitar magazine’s 42 Guitar Index . . . an average annual return of over 31% without experiencing a single down year.”


Additional article: "We've applied a model that has worked in a lot of other asset classes and we've applied it to art." “Over the past 10 years, returns in the art market have outpaced gains made by the S&P 500, according to the Mei Moses art index.” “Using this index, art returned 18.27% last year, while the S&P 500 gained 15.79%. Five-year returns also favour art investors, but go back 25 years and the S&P 500 comes out on top.”


Informational art fund related website.
Brief summary of what art hedge fund is, and how they operate.
Followings are covered subjects.
• introduction
• managers and investors
• an industry?
• strategies
• personnel
• costs
• primers



Paint by Numbers: Art as an Asset Class-July 2007
Art is an asset class with very few past price points
“Over a five-year period, an investor has about a one in six chance of seeing an art investment decline; for the S&P 500 Index, it's one in 10.”
Also, buyer and seller pays premium around 20% to auction process.
Draw backs- low transparency, investing in individual art work reduces diversification; index does not reflect transaction cost or art work fail to auction off.


Andy Warhol-based fund says art boom to go on. “A hedge fund that invests in prints by Andy Warhol, the pop artist known for his brightly colored paintings of Campbell soup cans, is betting the boom in the art market will continue because of increasing global wealth” Interviewer here emphasizes the fact art market was unaffected by subprime crisis.


"Investing in Fine Art as an Alternative Asset Class" - Article
Well established artist’s works are more stable even during financial turmoil.
Since, are is not reproducible increasing income level will drive demand up and supply staying or declining, thus providing solid long-term performance.
Three risks:
1. Opaque, illiquid and unregulated market - research covers only deals done in auctions
2. Subjectivity of intrinsic value - difficulties in valuation
3. High transaction costs - storage, auctions and dealer fees


Guest post produced by Sean Kim.

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