New Fund Aims To Tap Investors' Taste For Art

by Phillip Morton, Investors Offshore.com

05 June 2007

One of the world's first hedge funds focused on the buying and selling of fine art has been launched by the Guernsey-registered fund Artistic Investment Advisers Ltd.

The Art Trading Fund is aimed at high-net-worth expert and institutional investors and seeks to challenge the traditional ‘buy and hold’ business model of investment funds.

According to Artistic Investment Advisers, the fund buys and sells art via its global network of dealers, renowned artists, auction houses and galleries. Returns are maximised through geographical price arbitrage and by removing market inefficiencies. The fund sources art from a bank of vendors and sells through a network of buyers. The firm says that the fund uses an objective investment process and essentially monetises the substantial margins of a gallery and art dealing business - without the high fixed cost base of either - and passes that ‘alpha’ on to the end investor. The investment managers add additional value through asset allocation and via a synthetic hedge that provides downside protection.

“Traditionally, investment funds concentrating on art as an asset class have ignored the opportunities provided by market timing and active trading. Our strong artistic and financial expertise means that we are able to take advantage of this opportunity," said Chris Carlson, founding partner of Artistic Investment Advisers. “By launching the first art fund with a hedging mechanism, we are meeting investors’ desire to invest in an alternative asset class, but one that is not reliant on stocks or bonds which, as the market is becoming more saturated, are not providing the high returns they once were.”

Justin Williams, another founding partner, added that a four-year equity boom has created a lot of excess liquidity which has helped to create a thriving market in art. “Apart from America and Europe, this liquidity is also being fuelled by the ‘BRIC’ countries of Brazil, Russia, China and India – by utilising our global reach we are confident that the fund will reach capacity by the end of June," he explained.

According to the Economist magazine, Sotheby's, the world famous auction house, set a record total for a contemporary art auction this month, raising $254.9 million in one night. However, this record was eclipsed by Christie's, its rival, when $384.7 million in art was bought up in what the magazine termed an unprecedented "buying binge."

“There's a mood of speculation that I have never seen before in my 50 years in the business,” Richard Feigen, a Manhattan art dealer, was quoted as saying by the magazine.

The Financial Times reports that the Art Trading Fund has so far raised GBP10 million (US$19.9 million) but it hopes to have raised GBP25 million in time for its summer launch.

The Art Trading Fund has a minimum investment of GBP100,000 and is targetting annualised returns of 30%.

The fund is based on three core strategies that incorporate the Impressionist, Post-Impressionist, modernist and contemporary art markets.

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