Bank Follows Lead of Art Investment Funds Like Castlestone Management, Helping Break Down Barriers of Investment In China’s Cultural Assets
China Merchants Bank (招商银行) has launched a new “Art Banking Fund,” an add-on feature for the bank’s private banking division focused on high-net-worth individuals who want to invest in long-term domestic assets as well as contemporary Chinese art. This innovative program is the latest in CMB’s string of unique initiatives for China’s growing investor base, and attempts to reach this traditionally skittish demographic by allowing them to get involved with assets that are both Chinese in origin and a good investment over the long term, destroying one of the barriers for these investors to “Buy [into] China.”
Programs like this, which allow Chinese investors the ability to invest in a basket of hard assets rather than simply putting their money into stocks or other securities, should be quite successful in the mainland, where most investors feel that a diversified portfolio — more weighted towards hard assets like gold, jewelry, or real estate — is crucial. After all, Chinese investors are still a new demographic, despite their country’s age, as investment of this kind took a roughly 60-year break. Now, however, we can see that Chinese banks and investment firms are developing interesting investment strategies and products meant to offer “investment with Chinese characteristics.”
As China’s People’s Daily newspaper notes, this model of investment is brand new in China, and is currently offered to high-net worth individuals with a strong interest in China’s cultural assets:
Targeting at clients with minimum assets of 10 million yuan, the program is part of CMB’s private banking section launched in 2007 in collaboration with China Contemporary Art Foundation, which has a huge collection of more than 3,000 Chinese contemporary art works.
“We have worked with a group of Chinese and Western art experts to pick out 70 artworks including photos, oil paintings, wash paintings and sculptures, ranging from 10,000 to 1 million yuan,” said Su Yan, executive director of China Contemporary Art Foundation.
Private banking clients who pay a deposit money for the excellent art work will be given 12-month period to bring the artwork home and decide whether they want to keep it or not. After 12 months, they can either purchase it or return it and get their money back.
“The model is brand new in China, as art investment often involves great risk and wealthy people need time to understand Chinese contemporary art,” said Cai Can huang, deputy general manager of CMB’s private banking section.
In June 2007, Minsheng Bank first initiated art investment product in China licensed by the China Banking Regulatory Commission, with expected annual yield of 3 to 20 percent.
“Some banks hire art investment consultant and bring clients’ money to auction house. We are not doing that, because it easily slips out of control,” said Cai, affirming the program as a safe and long-term investment and a means of spiritual enjoyment for high-end clients.
“We offer free transportation and as long as the artwork is well preserved, our clients will at least break-even,” said Cai.
I think that potential art collectors (and art funds) can learn a lot from CMB’s pilot program. While funds like Castlestone invest in a range of art classes, they tend to stick with “the [western] classics” — a good strategy, but different from CMB’s “rent to own”-style rationale. China Merchants Bank’s Art Banking program is designed to help high-net-worth individuals learn about contemporary Chinese art while they profit from the investment potential, and let them develop a stronger appreciation for China’s important art scene and historical artists, creating a more active collector demographic. Many of these investors will probably end up seeking out additional artwork from artists for whom they develop a preference, ultimately affecting the global prices for these Chinese artists and creating more fluid dynamics in the Chinese art world.
We’ll keep an eye on this art fund, but at the moment it seems like China Merchants Bank has done an excellent job of finding a growing, underserved niche that will continue to develop and evolve in coming years.