Art investment funds are expanding in emerging markets such as the Middle East, India and Asia in an attempt to weather an economic slowdown.
New funds are being set up outside the US and Europe with the US dollar this month at its weakest since the Euro's debut in 1999 and US stocks touching their lowest level since 2006. About 60% of contemporary-art lots failed to achieve expected prices in London sales last month, research company ArtTactic said. Traders at the Tefaf art fair in Maastricht, Netherlands, said demand fell from US buyers.
"We see the Middle East as the next major market to take off," said Andrew Littlejohn, of New York-based Meridian Art Partners. He is starting a fund "focused on contemporary art in India, Asia, Russia and Africa." The Fine Art Fund, based in London and started in 2004, is investing in Chinese and Indian works too.
Collectors of Western contemporary art have been buying selectively after an 11-year period of price appreciation ranging from 2.5 times to as much as five times, according to index-maker Art Market Research.
More than ten billionaires are among those to have invested up to US$110 million in the Fine Art Fund, its CEO, Philip Hoffman, said. In 2006, he launched a Chinese Fine Art Fund with an initial target size of US$10 million.
This January, [Hoffman] opened an Indian fund, projected at US$25 million. He said the fund was registered in Delaware, so it wouldn't be affected by the Security and Exchange Board of India's recently issued guidelines on art funds.
"The Middle East has a big potential upside, but I'm nervous about it," said Hoffman. "We don't like to enter a speculator's market. That's why we never buy Damien Hirst." [Damien Hirst is an internationally renowned British artist, whose piece For the Love of God may or may not have been sold for £50 million (US$100 million) in 2007. Hirst’s pieces are controversial and expensive to produce, and there is uncertainty as to whether asking prices will generate profit for holders.] He plans a Middle Eastern fund that he hopes will attract investment of US$10 million.
London dealer Serge Tiroche, a former Citigroup banker, said in a telephone interview that he and his brother Micky plan to start a fund called ArtPlus, specializing in Impressionist, modern and contemporary art, in the second quarter of 2008.
ArtPlus aims to raise US$100 million to US$200 million in the form of shares and will hold "blue-chip" works and engage in short-term trading and "art finance," its prospectus said.
"This is a good time to start an art fund," said Tiroche."I believe in the next two years things will slow down and there will be opportunities to buy collections and distressed portfolios."
Some established collectors remain skeptical about art funds' ability to make profits for their investors.
"I'd rather be my own fund manager," said New York-based collector Howard Farber, who last October sold 45 works from his collection of Chinese contemporary art at Phillips de Pury, London, for US$20 million with fees, double the upper estimate.
In 2005, art funds started by ABN Amro Holding and Boston-based Fernwood Art Investments - the latter with a target value of US$100 million - were both closed after failing to attract enough investment.
Societe Generale's Olivier Maman said in a telephone interview that the French bank had planned an art fund aimed to draw an initial investment of €25 million (US$39 million). Maman, the fund's Managing Director, said that an institutional investor, who he wouldn't name, later pulled out. SocGen has been stung by a record €4.9 billion trading loss.
"It's still possible the fund might be launched, but the scale will be smaller," Maman said.
BusinessIntelligence Middle East, March 20, 2008. Exceprts from the article were selected by the staff of www.memrieconomicblog.org.