The interesting thing about art funds is that their focus is almost all about art as a means of making money.  Unless, for example, an art fund publicly displays its holdings or allows investors to temporarily borrow a work, the art fund basically treats art as nothing but an “asset” which will hopefully turn a profit.  In other words, the goal of the fund is to achieve significant financial benefits to investors (Horowitz, 156-57).  But what I find most interesting about an art investment fund is how the fund’s holdings are valued.  When it comes to a publicly traded stock or a mutual fund, there is an open and transparent means for buying and selling which sets the market price.   But that is not exactly the case with art investment funds.

For some art funds, such as artfonds-21.com, referenced by Horowitz in Appendix C, the goal is a publicly traded stock corporation that will provide a measure of value in the market place for its holdings. 

Without some sort of publicly traded equity in the investment fund, the investor in an art fund must rely on expert valuations, such as the detailed appraisal Professor Finley provided the Tosca Fund in 2011. 

What I found very interesting about the Professor’s appraisal is that in valuing a fund, one has to rely on a lot more than auction prices.  I had originally thought Thornton’s assessment that art is worth what “someone is willing to pay for it” as an easy gauge of value.  But it’s overly simplistic; many more factors are in play and need to be considered, e.g., uniqueness and history of the work, given the reality that not every piece is readily auctioned or sold.

Interestingly, the increasing popularity of art investment funds is in and of itself a gauge of the stabilization art values since the start of the recession (as well as a reflection of renewed confidence in the funds after many of them closed down ).   One recent fund, known as the Art Exchange, was started last year.  In its brochure, which refers to the company as “The Stock Exchange for Art,” it lists its attributes as:
Here is the link to their brochure:  http://www.afmarkets.net/en/brochure.pdf

With the art market, there has always been an issue of concern with transparency.   In order to address that concern when it comes to art funds, the Art Fund Association was started in order to educate the public as to all aspects of the art market.   http://www.artfundassociation.com/   

Given that the Association needs the funds to survive, I wonder whose interest it considers more important – the investors or that of the funds?

Investing in an art fund has come a long way since the model of the British Rail Pension.  While the funds had some great success, there has also been multiple cases of funds closing down.  It can’t be easy to establish a profitable art fund.   If I were to try to design an art investment fund, I would first focus on establishing a fund that acquires artwork which is part of a small niche, which, while not very diversified, would make it more easily to market to potential investors.  What comes to mind is some aspect of the contemporary art market, let’s say, the works of contemporary artists live in New York State.   I’d call it the Empire State Art Fund.  I would try and condition management fees, appraisal fees, and investor return on the existence actual profits from sales.  In other words, aside from essential operating costs, no one involved in the fund makes any money until there is an actual and realized profit.  At that point, there would have to be an equitable distribution of a portion of the profits .

 The highlights of the fund would be something like this:

THE EMPIRE STATE ART FUND

  1. Only acquiring contemporary works (of all kinds – paintings, sculptures, etc. ) from artists based in N.Y. State. (Seeking to establish a following and loyalty amongst NY artists and NY art investors).
  2. No acquisitions in excess of $10,000. (Creating the possibility for a large return on investment and establishing interest by focusing on works that are not yet well known). 
  3. Maintain, as noted in Dr. Finley’s Toscafund Report, a “thoughtful and strategic acquisition policy.”
  4. Minimum investment of $1,000 – closed end and private - amount invested determines amount of equity in the fund (making it easy for many to participate and invest in the fund).
  5. Any works can be borrowed from the fund for a short period of time (as long as insurance is in place).
  6. No returns (for advisors, management or investors) until the fund makes an actual profit (establishing integrity).
  7. Any sales to be conducted on line at the fund’s own web site. (no sale commissions).
  8. Monthly statements of all activity (complete transparency).
  9. All finances to be handled by a public accounting firm.  (Create integrity so investors have trust)

Example acquisitions:

1) Christa Toole

Oil on Canvas

“Gravitational Wave”

Acquisition Price $1500

2) Soos Packard

Sculpture

“chickn lickn head”

Acquisition Price $2500

3) Kelso Jacks

Painting

“Prey”

Acquisition price: $750

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