More Fund Managers Eyeing Art Investments — But Will They Rely On The “Old Favorites” Or Buy Art From Emerging Art Powerhouses Like China?
The New York Times recently wrote on art funds becoming a popular option for investors looking to diversify their asset holdings as the global economic crisis eases and investors crave more diverse investment destinations. Art funds, which dipped in popularity as the crisis took hold, have actually increased in number over the years, with many focusing only on one type of art or period. As the author points out, individuals who had been burned by risky investments in the pre-recession years are again looking at art as a wise investment:
“The art market has taken in the corrections. People are confident at today’s price levels,” said Anders Petterson, founder of ArtTactic, a London-based art market research firm, in a comment posted on the company’s Web site. “We are reaching the bottom, assuming the stock market does not dip again.”
Reflecting the new hesitance to put money towards the great-risk-but-great-rewards-maybe investments of the world like real estate, art investment funds are now getting more 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 the Times article illustrates,
A greater appetite for risk is shown by Castlestone Management, a New York-based asset manager specializing in alternative investments, which chose to open its Collection of Modern Art fund on May 31, when financial and art market turmoil was at its height. The fund invests in art by postwar, deceased or nonproducing artists, which Castlestone’s owner and chief executive, Angus Murray, said he considered “an irreplaceable real asset.”
Mr. Murray — himself the largest investor in the fund, according to Andrew Skeen, a spokesman for Castlestone — fed into it his own collection, initially including works by Richard Prince and Damien Hirst, two icons of the contemporary boom whose valuations have been hurt in the shakeout.
Castlestone’s investment strategy — meaning a west-heavy “basket” of artists, 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.