Art Investment Funds

April 22, 2011

When we think of the art market, we are likely to think of primary sales from artists to dealers, or secondary sales from galleries and auction houses to collectors. But we should not overlook the practice of investing in art. According to Noah Horowitz, “There is no better metric of [the health of the art market] than brimming activity in the art investment frontier.”

The economic downturn had negative consequences for art investment. The Art Newspaper reported that several art funds that were launched during 2008, including one advised by Charles Saatchi, failed to secure the required cash from investors and were forced to shut down. Daniel Grant at the Huffington Post also notes that a number of investment companies announced plans to develop art hedge funds, but few actually succeeded in attracting investors and creating the funds. Over the past year, however, there seems to have been growth in art investment.

Last week Russia launched one of the world’s largest art investment funds, Sobranie.photoeffect, valued at $467 million. The Financial Times reports that the fund expects to provide annual returns of about 12 to 14 percent. At the beginning of this year, Art Exchange, a sort of stock exchange for art, opened in Paris. Investors were given the opportunity to buy shares ranging from 10-100 euros in a single piece of art. The art remains on the market until a buyer has purchased all existing shares. If an investor has bought 80 percent of the shares, he or she can force the sale of the remaining 20 percent and remove the work from the Exchange. Participating galleries must show the works by appointment and loan them out, which will increase the value of the shares.

In a recent ArtInfo article, Noah Horowtiz asks, “Who Stands to Gain from Art Investment Funds?” These funds help lower barriers to entry onto the art market, and also help bring transparency to art market practices. However, the funds also add more middle men to the process. One new organization in particular, the Art Fund Association, has stepped forward to try to regulate this trade with questionable results. Nevertheless, Horowitz welcomes the new exchanges and associations to the market:

“Art exchanges and fund advocacy groups may come and go, but novel initiatives are part of the art world’s fabric and some of these undertakings are bound to stick. And so they should. The vitality of tomorrow’s trade depends on them. “