Source: Bloomberg (www.bloomberg.com), by Scott Reyburn
Art investment funds are expanding in emerging markets such as the Middle East, India and Asia in an attempt to weather an economic slowdown.
New funds are being set up outside the U.S. and Europe with the dollar this month at its weakest since the euro's debut in 1999 and U.S. stocks touching their lowest level since 2006. About 60 percent of contemporary-art lots failed to achieve expected prices in London sales last month, research company ArtTactic said. Traders at the Tefaf art fair in Maastricht, Netherlands, said demand fell from U.S. buyers.
"We see the Middle East as the next major market to take off,'' said Andrew Littlejohn, of New York-based Meridian Art Partners LLC. He is starting a fund "also focused on contemporary art in India, Asia, Russia and Africa.'' The Fine Art Fund, based in London and started in 2004, is investing in Chinese and Indian works too.
Over the last five years, managers of art investment funds, which buy and sell a pool of works for a set management fee and a share of any profit made, have been keen to promote art as an alternative asset class. So far, the Fine Art Fund, started in 2004, is the only one of these vehicles that has remained conspicuously active in the West.
Collectors of western contemporary art have been buying selectively after an 11-year period of price appreciation ranging from 2.5 times to as much as five times, according to index-maker Art Market Research.
"New markets have the best opportunities and we want to offer them to sophisticated investors,'' said Littlejohn, a former Phillips de Pury manager who worked in New York, London and Asia.
More than 10 billionaires are among those to have invested up to $110 million in the Fine Art Fund, its chief executive Philip Hoffman said. In 2006, he launched a Chinese Fine Art Fund with an initial target size of $10 million.
"We stopped buying Chinese contemporary art for that fund nine months ago,'' said Hoffman, a trained accountant who formerly worked for Christie's International. "We're now looking at other areas. I've just bought a piece of 18th-century Chinese Imperial porcelain for $1.5 million.''
This January, he opened an Indian fund, projected at $25 million. He said the fund was registered in Delaware, so it wouldn't be affected by the Security and Exchange Board of India's recently issued guidelines on art funds.
"The Middle East has a big potential upside, but I'm nervous about it,'' said Hoffman. "We don't like to enter a speculator's market. That's why we never buy Damien Hirst.'' He plans a Middle Eastern fund that he hopes will attract investment of $10 million.
Brothers in Art
London dealer Serge Tiroche, a former Citigroup banker, said in a telephone interview that he and his brother Micky plan to start a fund called ArtPlus, specializing in Impressionist, modern and contemporary art, in the second quarter of 2008.
ArtPlus aims to raise $100 million to $200 million in the form of shares and will hold "blue-chip'' works and engage in short-term trading and "art finance,'' its prospectus said.
"This is a good time to start an art fund,'' said Tiroche. "I believe in the next two years things will slow down and there will be opportunities to buy collections and distressed portfolios.''
Some established collectors remain skeptical about art funds' ability to make profits for their investors.
"I'd rather be my own fund manager,'' said New York-based collector Howard Farber, who last October sold 45 works from his collection of Chinese contemporary art at Phillips de Pury, London, for 10.1 million pounds ($20 million) with fees, double the upper estimate.
`Buy Some Books'
"All you have to do is follow some auctions and buy some books,'' Farber said. "It's so much more rewarding.''
In 2005, art funds started by ABN Amro Holding NV and Boston-based Fernwood Art Investments -- the latter with a target value of $100 million -- were both closed after failing to attract enough investment.
Societe Generale SA's Olivier Maman said in a telephone interview that the French bank had planned an art fund aimed to draw an initial investment of 25 million euros ($39 million). Maman, the fund's managing director, said that an institutional investor, who he wouldn't name, later pulled out. SocGen has been stung by a record 4.9 billion-euro trading loss.
"It's still possible the fund might be launched, but the scale will be smaller,'' Maman said.
(Scott Reyburn writes about the art market for Bloomberg News. Any opinions expressed are his own.)