Investment Funds Looking To Buy Artwork, Gains In Industry Expected As Investor Confidence Increases
It has not been a very good year or so for assets in general, as everyone knows. Reflecting the new hesitance to put money towards the great-risk-but-great-rewards-maybe investments of the world like real estate, investment funds are getting creative. Some funds are going against the grain, putting money toward assets that are not expected to bring quick, huge returns yet are expected to appreciate over time and — perhaps most importantly — outpace inflation. Since massive global spending on stimulus packages and the like are expected to bring at least SOME measure of inflation into the picture, investors are looking at assets that will keep their money in check, and allow it to grow at a sustainable pace.
To do this, some funds are looking at areas that have historically appreciated gradually, art being one example, and are doing so with a sense of urgency at the moment as major works by quality artists have decreased proportionally in value due to the financial crisis. However, while I think these funds are essentially a good idea, I personally feel that they are far too western/European-focused, and, as such, will miss an important opportunity to take advantage of new markets that are set to perform incredibly well in the near and long term.
London-based Castlestone Management has jumped feet-first into this Europe-heavy art investment strategy, recently launching a Collection of Modern Art fund. As Reuters points out,
The fund, an 8-year investment vehicle with a minimum investment of $10,000 or 10,000 pounds, will buy up art in genres such as impressionist, post-war, contemporary, sculpture, urban art and photography, while its managers will be supported by experts from auction houses, dealers and artists.
Castlestone points to diversification, a lack of correlation with stocks and bonds, and research from Mei and Moses showing strong performance from art since 1875.
Castlestone notes in a release, “Right now, the prospects for art prices look excellent…[and] increasing urbanization around the world has led to a boom in museum construction globally.” Indeed, as the Guardian points out, “in its quarterly health check of the sector, Rics finds that a third of surveyors say antique prices have risen over the past three months.” The Castlestone fund is looking to invest not only in Modern art but also contemporary art, in big British names like Damien Hirst and Banksy, so this begs the question — is Castlestone’s investment strategy, which targets art, an area which it says has performed admirably since the late 19th century yet does not target any emerging markets, a good model for other investors to consider when looking for ways to protect their money from inflationary pressures? Other funds, like New York’s Meridian Art Partners, have had some trouble raising funds recently, mainly due to macroeconomic pressures and investor skittishness. Taking a slightly different tack than Castlestone, Meridian hopes to target “emerging markets,” where much of the dynamism in the art world is currently concentrated. As The Art Newspaper writes on the Meridian Fund,
Co-founder Andrew Littlejohn said that it became apparent towards the end of 2008 that the drop in confidence “precluded most investors from being interested in longer-term investment vehicles”, particularly something that is “as esoteric as art”.
He and his co-founder Pamela Johnson, both previously at Phillips de Pury, had planned to invest in emerging art markets but, he said, they found that problems at the private banks with whom it had partnered, together with recent scandals such as the Bernard Madoff fund fraud, had dampened investor enthusiasm.
Although investors are slow to warm up to handing money over to funds, I think Meridian has the right idea here, since art from emerging economic markets like China often mirrors the economic performance of their home country. Art funds that get into emerging markets stand to benefit hugely from their investments as their consumer markets evolve and their art markets duly rebound — going, as China’s art market, from red-hot to a sustainable simmer that will bring great returns for investors and collectors of all shades. While only time will tell if western/Euro-heavy investment funds or emerging market funds win out, I plan to watch the performance of these emerging markets with a particular focus in the near term, since I expect that all quality art will continue to perform admirably — as it has since the mid-19th century — as a global investment vehicle vs. gold or other common asset classes.