Art Funds on the Rise

I have posted a fair amount about being its own asset class as demonstrated by investment opportunities and art financial track through services like Mei Moses.  Artnet.com just published a good article on art funds and how in the current market place investors are looking for alternative investments.  These funds in the past have had mixed results and reputations.  The Artnet article gives some good insight into the risks and rewards of investing in art funds.

Artnet reports

The number of art funds is most certainly on the increase, although Enrique Liberman, president of the New York-based Art Fund Association, noted that their number is uncertain, as “most funds do not publicly market themselves” but are offered in a more private fashion to investors with a high net worth. However, Liberman claimed to be “aware of 25 funds now in existence and another 15 in development. These funds manage between $800 million and $1 billion.” Liberman’s organization itself only started up in early 2011.

One example is the minimally named Collectors Fund based in Kansas City, which raised $20 million -$30 million between May 2007 and December 2010 from approximately 100 investors, most of them local. The fund’s purchases have been focused on 20th-century and contemporary American artists, including Milton Avery, Romare Bearden, Alexander Calder, Helen Frankenthaler, Robert Indiana, Franz Kline, Cindy Sherman and Wayne Thiebaud.

The entry price for investors in this fund was $100,000, although some contributed $500,000 and higher. Investors receive 40 percent of the net proceeds for the first four years of the fund (the remaining 60 percent is reinvested) and only in the last three years receive 100 percent of the net.

Collectors Fund founder Alexander Kemper said that 13 percent of the fund’s artworks had now been sold, for an annualized rate of return of 28.5 percent -- after the payment of a two percent management fee and a 20 percent performance fee. One of those artworks, Charles Burchfield’s Trees in Meadow (1951-56), was bought by the fund in December 2007 for $170,000 and sold two years later for $325,000, a net annualized return of 31.8 percent. Other works bought and sold by the fund include Neil Welliver’s 1965 painting Two Canoes, which brought a net return of 30.4 percent, and an untitled 1957 oil by Franz Kline, which resulted in a net return of 16.4 percent.

When artworks in the fund are sold, 40 percent of the net profits are distributed to investors with the remaining 60 percent reinvested into additional art purchases. By the seventh year, 100 percent of the net profits will be split between the investors as the fund begins a three-year phase-out period. The Collectors Fund was considering opening a second art fund by the end of this year.

The Collectors Fund lends out artworks from its collection, and Kemper noted that several of the works had been bought by investors, though their insider status doesn’t get them a discount price. “We get two appraisals for every work we sell,” and investors pay the appraisal price, he said. They do get a small bit of the profit back as investors.

Artemundi Global Fund, an art hedge fund founded in 2009 that is based in the Cayman Islands, lent a work by Gabriel Orozco for the artist’s survey exhibition at the Museum of Modern Art, as well as a painting by Leonora Carrington (and three other works) for an upcoming exhibition of Surrealist art by women at the Los Angeles Country Museum of Art. “We’ve lent 10 to 15 pieces to museums around the world,” Artemundi’s CEO Javier Lumbreras said.

To read the full Artnet article, click HERE.

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