Tuesday, December 15, 2009

Guide to investing in art – Art Funds

There are primarily 2 ways in which one could invest in Art.

1. Investing in individual pieces of art work similar to buying shares of a particular company or

2. Investing in an Art Fund which is similar to investing in a mutual fund, where there is no possession of the art work

In an earlier article I had talked about investing in individual art works, this is the continuation of that article on investments into art funds.

What is an Art Fund?

An art fund is like a mutual fund for art, usually paintings. Instead of an investor picking out an artwork on his own, he relies on professionals to do it for him. Like mutual funds, art funds have managers who manage and run the fund. Most art funds are closed ended, with an average term of 5 years.

Art funds have several advantages over investing in individual artworks. Not every investor is knowledgeable enough to choose the right artist; in this situation, it may be wiser to let the experts do it. There is also the advantage of diversification among various artists, styles and genre. One of the main advantages over buying individual artworks is that, it is quite usual that an investor gets attached to the artwork, since the investor is admiring it everyday, and may hesitate to sell when the time is right. This is a quite common and serious disadvantage, because the investment value is lost without booking profits. This can be avoided by investing in an art fund.

Art funds are gaining popularity has an alternative investment option with investment banks like ABM Amro, Goldman Sachs and nearer home Religare, Yes Bank and Bajaj Capital are some of the traditional investment houses that have begun offering art as an alternative.

How does it work?

The fund manager and his team of professionals are mainly from the investment banking industry. The come from various spheres of the art world, like professional trade institutions (galleries, auction houses), publishing (journalism) and academics. The fund management creates an ideal portfolio of art and artists with their intended strategy. The strategy could be to acquire works of old masters and modern artists like Picasso, Titian, Monet through auctions, private collections, museums or commercial galleries. Wait for their prices to appreciate (which it is bound to with the supply being short), before liquidating them for a profit. The returns are then distributed among the investors. On the other hand, a more daring strategy would be to pick and choose currently undervalued artworks and wait for their price appreciation. Due to this most art funds are close-ended and take about 5 years to mature, in some cases even 10.

Once the strategy has been formulated, the selling process begins; at private parties, through investment banks and wealth managers etc. A brochure is printed detailing the artworks planned to be procured. Almost all of these funds target high-net-worth individuals who are on the look out for alternative investments to diversify their portfolio. They also target pension funds, private banks and other sources of cash reserves. The fund management team uses it network and referrals to convince and attract investors. The management then procures the artworks from the various sources, trying to make sure they are getting a bargain. The artworks are then stored in a storage facility or sometimes also lend out to exhibitions and museums for a fee. Some funds also lease the paintings to their investors for a fee. The art funds look for the right opportunity to cash in on their artworks; this is an ongoing process through the life of the fund.

The costs incurred in art funds can be quite high. They mainly include the cost of the fund manager and his team and the cost of storage, insurance and transport. The aggregated costs could come to 10% to 15% of the price of the work. Fund managers are also given a certain percentage of the profits before it’s divided among the investors.

How good are they?

This is the million dollar question. Everything depends on how good the team is and how their selection and art acquisition skills are. It may be too early to tell as, Art funds have emerged as an investment options only in the mid 2000s. One of the first funds of this kind was introduced in the mid-1970s; British Rail Pension Fund put $100 million, or 2.5% of its portfolio, into art. The fund amassed a broad collection of 2,400 pieces, from Chinese porcelains to African tribal art. The portfolio wound up with an annual compound return of 11.3%, but the gains came primarily from 25 Impressionist paintings. The fund sold off all of its art from 1987 to 1999. After a lull Art funds have again emerged as investment vehicles.

But the performance of some of the recent funds like the ABN-Amro Fine art fund and the Osian’s Fine art fund (India) are not very encouraging. They were not able to provide any appreciation to their investors, infact they led to depreciation of the capital.


I think waiting and watching the performance of the existing funds would make sense for somebody who is interested in investing in Art Funds. The next couple of year should see more art funds nearing their term.

Happy Art Investing….

Courtesy : Monsoon Canvas

Thursday, November 5, 2009

Guide to investing in art - How do I choose the right artist?

There are primarily 2 ways in which one could invest in Art:
1. Investing in individual pieces of art work similar to buying shares of a particular company or
2. Investing in an Art Fund which is similar to investing in a mutual fund, where there is no possession of the art work

This article discusses what we need to look for while investing in Individual artists and artworks.

Like the stock market, there are some key attributes that you should be aware of before buying an artwork. The artist is the brand (like a company) and the products are the artworks he produces, therefore it is pertinent that one invests in a good artist. How to judge whether an artist is good? Here is a check list of factors that you can use:

1. How famous is the artist? – A little bit of research will let you know who the well bought artists are, who the emerging artists are and the ones that are promising starters. You need to make the decision between these different categories of artists. For the very famous ones, your budget needs to be higher than for a promising star, which may have high appreciation potential.

2. What is the artist’s training background, is he/she from a famous art school? – did he/she train under a famous artist? – Most galleries have a bias against self-taught artists (the artists who do not have a formal education), but this doesn’t mean there are no talented self taught artists – MF Hussain, Bhupen Khakhar are the most prominent ones.

3. How many shows or exhibitions has the artist done in the past and in which galleries? – The more the better, since galleries only host artists that they think will sell well.

4. How long has the artist been painting? - The longer the better, as style and technique matures over the years, with experience.

5. The number of awards and accolades won by the artist – Awards and accolades given by recognized national and international art institutions.

6. The workshops and other learning events attended – Workshops help an artist learn and grow in creativity, technique and outlook.

7. The number of international shows exhibitions – International shows and exhibitions proves that the artist is not only a good artist but also a good PR person, which is important to sell art.

8. Find out whether reputed art institutions like museums, organizations have the artist’s work in their collection.

9. Does the artist have a unique style – This can be found from reviews written on the artist or by comparing his works to others

10. But the most important question is DO YOU LIKE THE ARTWORK, because it will be hanging on your wall for sometime.
The above checklist should help you select a good artist for the purpose of investment.


• It is best to acquaint yourself with the art scene before making a decision to purchase a piece. It is advisable to visit art shows, galleries and use the internet to read reviews and article on art.

•All galleries have artist biographies on their websites, which provide most of the information needed as above. Some sample biographies :
o CF John / Asma Menon / Yashwant Shirwadkar

• In the event of purchasing, please make sure to get an authenticity certificate – preferably from the artist himself.

Happy Art Investing !

Above : An untitled portrait by TM Azis

Tuesday, October 13, 2009

Indian art – an alternative investment option

Just barely recovering from the stock market fiasco, investors are beginning to rethink the logic of diversification of their portfolio. Many investment advisors are turning to Indian art as an emerging alternative investment option.

Although the concept of investing in art is relatively new in India, art has always been a viable investment option in the west. Art investment in India is gaining momentum with the works of M.F Husain, Tyeb Mehta and F.N Souza being lapped up by international collectors. FN Souza’s work ‘the Birth’ sold for $2.3 million, setting records in valuing Indian art. MF Husain and SH Raza are currently valued anywhere from $200,000 to $1 million. Industry experts expect prices to shoot up to between $5 million to $10 million in the next few years. The growth in Indian contemporary art also reflects the same trend. The prices of works of several famous artists like CF John, TM Azis, Yusuf Arakkal, Atul Dodiya have increased considerably since Indian art reached the international stage.

The potential for further rapid growth of the Indian art market makes it a viable investment alternative. For example, the ET art index (Art index by the Economic times) has grown phenomenally from just 116.53 points in 2000 to 3106.47 in September 2008. According to Arttatic, an independent research firm, the Indian art market in 2008 was valued at approximately $70 million from the $40 -$50 million level in 2007.

Let’s take a look at the top 3 reasons for the growth in the Indian art market which would serve as the foundation for art becoming an alternative investment option.

The increase in demand for Asian (Indian) art by international collectors

  • Auction houses like Christie’s and Sotheby’s realizing the potential of Asian art, opened up the international art market to Asian art. The results from the recent auctions at Sotheby’s, Christies and Saffronart have been encouraging, with a total of almost $7.7 million worth of art being sold in the summer sales 2009.

  • A new generation of art collectors from emerging economies, with their rising income levels, has created a market for Asian art internationally. The nouveau collectors relate more to art from their own cultural background which is especially true in the case of NRIs (Non-Resident Indians)

  • The Indian art market also benefited from the recent boom which increased the disposable income in the economy and bought with it slow but steadily growing group of art aficionados. Interestingly art auctions in India have been rising steadily starting with only 3 auctions in 2003, to 14 auctions in 2005 and approx 40 auctions in 2008.

The rise of an organized art market for Indian art

  • With the advent of international Auction houses, there has been a standardized approach to valuation of art, promotion and sale of Indian art. These guidelines will enable the efficient and consistent functioning of the art market in India.

  • There has been a growth in the secondary market for art with a number of art galleries, art advisors, auction houses (India’s own Saffron Art) and corporate collections established within the past decade. The secondary market provides a platform for trading in art.

Increase in liquidity of Art as a medium of investment

  • Liquidity is a prime factor in decision making for any form of investment. Over the years, liquidity in the Indian art market has increased considerably with a number of financial institutions introducing Art investment services in the form of art advisory or art funds. Religare, Yes Bank and Bajaj Capital are some of the traditional investment houses that have begun offering art as an alternative.

  • There also a number of art funds set up as an investment vehicle like Osian’s Art Fund, Crayon Capital, Yatra Art Fund etc. The Osian's Art Fund, worth over Rs 100 crore, oversubscribed within a few days of opening allotment.

  • Art Summits like India Art Summit 2009 in New Delhi and the Art Expo 2009 in Mumbai, play the role of developing the art market by creating a venue for promoting Indian art.

  • Indices like the ET art index and the involvement of SEBI (Securities Exchange Bureau of India) has given art additional credibility and liquidity it needs.

The Indian art market is currently in a very nascent phase, where the stage has been set for enormous growth. The increase in activity from the various players could take this market much higher than predicted. All said, one should however be careful to take professional advice before plunging into the art market.