At Meural, we're driven by art democratization and transparency—and so we've developed a series at the intersection of art and commerce. Each installment provides an objective, accessible debriefing of a financial aspect of the art industry. Read more about the series' objective and what's to come.
Courtesy The Observer. Artists like Zhang Xiaogang were part of the price boom in Contemporary Chinese art which brought speculative investments in art to greater popularity.
by Elinor Case-Pethica
In Episode 4, we investigated the efficacy of buying artwork as an investment. This week, we take a closer look at a different way art can act as an asset—in the form of art fund shares.
The individual, with X amount of money available to invest in art, can choose to buy one piece worth X, or several pieces with a combined value of X. Because not all pieces will gain worth over time, spreading out the risk over multiple pieces is wise. The flip side is that as the price point of artwork gets lower, the likelihood of increasing or even maintaining a steady value is less probable. Art funds draw together investors and pools their money to purchase artworks for resale. A share in an art fund allows the individual to invest more broadly, and in pieces that would otherwise be out of their price range. Works by top artists continue to ramp up in price, making their works ever more out of reach—partial ownership through an art fund can be a means of entry. While at their root, art funds are based upon speculating that an artwork may rise in value, they offer a a greater degree of protection and a wider buying range than solo ventures. Art is a non-correlated asset, meaning that the value of a piece is not contingent on the strength of the stock market. This makes the art market a resilient counterbalance to wider economic swings.
Courtesy Bengal Connect. Art investment is based on the idea that artworks, unlike assets such as stocks, will always retain relatively high value.
Art funds employ a range of different investment techniques—unlike other groups like mutual funds, they are not contractually or legally restricted to any specific strategies or focuses. Strategies include things like co-ownership, which involves partnering with a third party to divide risk, or showcasing, meaning buying works that can be lent to museums and major collections for exhibition, increasing their value. The Anthea Fund, for instance, specializes in Post War and Contemporary Art, with holdings of 36 works by 13 artists. 35% of their investments are in emerging artists. Since launching in April 2013, this strategy has brought Anthea a 23.4% return, with its best investment increasing in value 404.3% and its worst losing 16%. One approach that has had enormous success in a number of different funds has been the regional strategy; investing in works from a specific geographic area. This technique in recent years has yielded incredible profits in Chinese contemporary art.
Courtesy Getty. Art Funds offer the opportunity of partial ownership of multi-million dollar works.
Investing in an art fund is a long-term endeavor; in almost all cases profits are made through buying and holding, rather than immediately re-selling. Most funds charge a management fee of 1-3 percent, in addition to taking a cut of final profits—some as much as 20%. Most decisions are made at the discretion of the fund manager, in many cases investors have little knowledge or input as to which pieces are bought. For those hoping to invest, finding a fund can be a challenge. The funds are not listed on any exchange, and are typically drawn together from pre-existing networks of individuals. Deloitte ‘conservatively’ estimates that there are 72 funds currently in operation, 55 of which are in China. London's The Fine Art Fund Group, the largest fund on the market, holds over $500 million in assets under contract, requires a minimum investment of $500,000 to $1 million to enter.
The number of private art funds has climbed in the past few years, representing a $1.3 billion dollar section of the art market—still relatively small, but steadily growing.
Statistics from Deloitte.