Art Fund Of Funds Marketed In Singapore

by Phillip Morton, Investors Offshore.com

01 June 2005

The Singapore office of the Dutch investment bank ABN Amro has begun to market an art-based fund of hedge funds to high-net-worth individuals and corporate clients in Asia.

Still a fairly new concept in the alternative investment world, at least in Asia, such art funds purchase various works of arts in the hope of capitalising on an appreciation in their value over time. ABN Amro Singapore's new vehicle will seek to invest across at least five already established art funds, according to Dow Jones.

The bank has decided to take the fund of hedge fund route as this enables it to reach a potentially greater investment audience. Under guidelines set by the Monetary Authority of Singapore, investors must place a minimum of S$20,000 (US$12,000) into a fund of hedge funds. A single hedge fund however, requires a minimum investment of S$100,000.

The fund of hedge funds route also helps to diversify risk.

While the value of 'blue chip' works of art have risen over the long term, experts advise that investment in art funds is not for every investor, and is normally the preserve of serious collectors or experts. The value of art in the underlying fund is also governed to a large extent by changing tastes. Returns, therefore, are by no means certain, and the funds remain subject to a certain degree of risk.

Other drawbacks include high transaction costs, which often account for as much as 25% of the total value of the piece, and an illiquid market - objects take a minimum of three months to sell at auction. Then there is also an ever-present risk of counterfeiting.

Nevertheless, the London-based Fine Art Fund, first launched in February 2003 to predominantly European and North American investors, has netted returns of up to 80% on some purchases. The Fine Art Fund, which invests in the top 2% to 5% of the art market and requires a minimum investment of US$250,000, began marketing globally in March 2004, and targets returns of 10% to 15%.

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