How to Invest in Art Funds
What to Expect As You Become a Part Owner of a Masterpiece
Not everyone can own a masterpiece. Besides the often prohibitive price tags, you also have to wait for one to come up at auction, and not all art lovers have adequate wall space. One of the greatest troubles (and joys) of paintings and sculptures is that there’s just one of each.
Art funds, however, allow individuals to share ownership as they make investments in aesthetic assets including masterpieces. Around since 1974 (according to Artsy.net), these entities have shifted over the years to accommodate new investors and eras of art history. Now, you need not be a millionaire, nor an Old Masters aficionado, to buy in. This year may also be a particularly good time to invest. According to Ruth Knowles, Senior Director, Investor Relations and Marketing at the UK-based The Fine Art Group, “art is a growing market, with a total market size of approximately $45bn in 2017, and signs indicate that 2018 will be higher.”
Below, the experts offer some advice on what to look out for--and what to expect--as you search for the right art fund.
What Qualities Should Investors Look for in an Art Fund / Art Fund Manager?
Massimiliano Subba, of Switzerland’s Anthea Investments AG, believes that potential investors should look at funds’ particular portfolios. After all, you’re not buying something intangible like a stock: you’re purchasing a handmade, expertly crafted object. Portfolios range from exclusively Asian Art, to Old Masters, to Modern and Impressionist or Post-War and Contemporary. You can own a piece of a work created in the 1500s... or something made just last year.
Beyond mere aesthetic preference, different kinds of art may yield alternate rates of return. Any art fund manager should be able to explain the strategy behind why they’ve chosen particular works. Also, notes Subba, some funds are simply opportunistic: “they take advantage of special situations when they can make acquisitions below market price,” he says.
Peter Barker, Managing Director at Harrington Art Fund Partners, Ltd. offers a potential shortfall. “The biggest problem with many art funds,” he says, “is the inability to frequently mark-to-market the art assets they hold, and therefore investors have no idea how their investment in an art fund is performing. Since overall art market pricing cycles are very geared to the major auction house calendars, interim pricing is difficult to determine.” Market liquidity has been low, though it’s improving.
Knowles offers some questions that potential investors can ask: What is their reputation? What is their position within the art world? She believes that managers should offer access to the market that a client could not get otherwise. “The people that we work with at The Fine Art Group are the leading experts in their fields,” she says. “For example, Guy Jennings, our Managing Director, has been the European Head of Impressionist and Modern art at Christie’s, and also Deputy Chairman of Sotheby’s Europe.”
How Much Return on Interest Can You Expect? And when?
“Just this past week, we handled a work that was priced at $2.3 million before last week’s auction, and is now trading at $2.7 million. Other artworks may take many years to move up in price,” says Barker. Like many investments, the value of particular paintings or sculptures can fluctuate dramatically and at times seem unpredictable. That’s why it’s important to seek out an expert who’s familiar with the vicissitudes of the market. Barker also notes that auction houses (Christie’s, Sotheby’s) are seeking high bidders; going directly and independently to an auction won’t help individuals secure the best possible deals on art. Art funds, on the other hand, have the ability to negotiate on their own. Anthea itself privileges private negotiations with individual collectors, museums, and foundations.
Subba and Knowles get pretty granular. The former says he’s seeing a weighted average life of 5-6 years, final maturity up to ten years in the market and his fund. Five to six years after Anthea launched their fund, they repaid all the capital invested to investors. “Any investment left into the fund would be liquidated at very latest within ten years from the establishment of the firm,” he says.
Knowles offers some percentages. “The Fine Art Group has successfully launched a series of funds – three of which are long term, western art funds – as at mid-2017, these funds had achieved a 13% annualized return on all investments made, with a loss figure of only 0.7% by value,” she says. Different fund structures determine different times for return (annually, deal by deal, end of the life of the fund, etc.).
Who Invests in Art Funds?
According to Knowles clients from a wide range of financial backgrounds can now invest in art. “Whilst we operate at the top end of the market – typically $2M+, you see people investing in art at much lower levels, for example £500; £1,500,” she says. If your budget for artworks is less than $1000, you can still own a part of some wonderful pieces.
Barker notes that he’s seeing “increased play in the Asian and South American markets and continued strength in the European and American markets.” The art world is becoming ever more global, and its opportunities for investing are too.
Of course, unlike many kinds of investments, you can see the work you (partially) own in person. Anthea Art Investments recently loaned two of their paintings to the Reina Sofia in Madrid. The show will no doubt elevate the value of the art, as it adds an illustrious detail to their provenance. Beyond that, owners can visit the museum to appreciate the details up close. They’re essentially funding the public’s ability to see great art: without their financial commitments, the works might otherwise be in private hands. As Barker says, “we are only custodians of the work as it moves through history.”