Fund Managers Moving Towards Art As Investment Diversifier, Will These Managers Balance Their Art Portfolio Investments With A Global Mix?
Castlestone is investing in western artists like De Kooning. By focusing only on western art, is the fund going to miss out on higher returns later?
We have written before on Castlestone Management, a $660 million investment fund that focuses on works of art, which the fund feels is a better investment over the long term than traditional hedges like gold or other hard assets. Today, Bloomberg has an excellent profile of the fund, noting that it is designed to benefit from one of art’s great features — a resistance to the great asset de-valuer: inflation. Castlestone, and art investment funds like it are , Farah Nayeri writes, “designed as an anti-inflation shelter at a time when recession-busting stimulus packages are flooding the global economy with cash.” So with the number of these funds increasing, as investors look for inflation-defying destinations for their money, will they get with the program and look for a more global mix, made up of Chinese, Indian, and other emerging artists? Or will they stick to their Picassos and Warhols?
It looks like Castlestone may be up for anything as time goes on, but at the moment they seem to be a bit top-heavy with artists who are late in their career. However, with this sort of fund growing and becoming more popular with inflation-weary investors who aren’t up for the rollercoaster ride of investing in gold, stocks, or jewels, an art fund might be just the thing.
“As long as the value of money falls, the value of real assets will rise,” says founder and joint chief executive officer Angus Murray, 39. “Art to me is exactly the same asset as gold bullion.”
“The two assets are running in parallel,” says the Australian-born Murray, who wears an open-necked white shirt with his suit trousers. “The devaluation of money is affecting both.”
The global economy is in its worst slump since World War II, and will shrink 1.3 percent this year, according to the International Monetary Fund. The U.S. has introduced a $787 billion stimulus package to combat recession.
Murray pulls out a sheaf of graphs showing how gold has tripled in price this decade. Art, too, is an “irreplaceable, unleveraged, real asset.” As the value of money erodes, art will appreciate over the fund’s eight-year life, says Murray.
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Castlestone has bought $16 million worth of art and plans to spend another $9 million by the end of September to create a diversified portfolio of about 26 artists. They include Jean- Michel Basquiat, Lucio Fontana, Willem de Kooning and Alexander Calder. The priciest work so far is a Basquiat that cost $1.2 million. Another $885,000 was spent on a De Kooning.
The article goes on to discuss the more attractive prices of contemporary and Modern art this year; Rather than being a bad thing, however, the article points out that it is a buyer’s market for hard assets, and as a result, art funds and collectors will have a net gain. Other funds like the Fine Art Fund Group, which collect everything from classics to contemporary art, have seen their value go down in line with the drop in asset prices across the board, but, as Bloomberg points out, they see this as a buying opportunity. As long as they’re looking at reasonable horizons, possibly 5-10 or more years as the dynamics of the art world continue to change along with the rising dynamics of the emerging world (and as the western art market heals, potentially buoyed by the increasing Asian and non-western buyer base).
I’m going to put in my two cents here and say that single-hemisphere funds like Castlestone are an incredibly smart idea, but they might be loading themselves a bit too heavily with western art. I think art is a strong investment, and it has an excellent track record compared to other real assets, but the problem with funds like Castlestone is they are stuck in a Europe-centric art universe, which is good, but doesn’t look at the new markets and changing dynamics of the art world (along with the changing mix of art buyers we are seeing).
The London-based Fine Art Fund Group gives equal weighting to Old Masters; Impressionist and modern art; and contemporary art. It has lost 20 percent to 30 percent of its value in the last year, and now manages around $100 million, according to Chief Executive Philip Hoffman. Until the end of 2007, the fund had an average annualized return of 23 percent, says Hoffman.
This year is a “bad time” for selling, “but acquiring art is unbelievably attractive,” says Hoffman. At the same time, he says new funds lack a track record: “Art is a dangerous thing if you don’t know what you’re doing.”
Inflation Hedge
New York-based art dealer Richard L. Feigen, who deals in European paintings from 1300 to the present, views art as a “valid refuge” at a time when collectors are “worried about inflation.” Yet he adds a note of caution.
“A bar of gold is a bar of gold,” he says. “No two works of art are the same, unless they’re editions of a print.”
For art to be a good investment, Feigen says, it must be of “permanent importance” to art history, of “museum quality” to lure institutional as well as individual buyers, and of interest to more than one part of the world.
I write often about emerging art markets, because that is where my personal interest lies, but interest aside, I think works of art by artists in China, Japan, India, and even Vietnam are of “permanent importance” if they are high-quality. And they’re “museum quality,” at least the ones we have written about in the context of acquisitions by MOMA, the Getty, the Tate Modern, and more of contemporary Chinese art.
In eight years, Murray hopes “I can actually stand up and say: ‘Here’s a catalog from Sotheby’s that shows you I bought at this price, I sold at this price, this was the independent annualized return of 11 percent. It worked. We were right.’”
