As the prices of major artworks zoom, niche money managers are developing 'art funds' with the hope that their underlying works of art — and shares — will appreciate in value.
And art experts are nervous as these funds bear similarities to asset-backed securities and derivatives that got such a bad name in the financial crisis.
Last year, auctions set records. Bidders paid $106.5 million for a Picasso, $104.3 million for a Giacometti, $89.5 million for a Qianlong vase and $11.5 million for a rare Audubon book.
Financial firms are looking to capitalise on that interest, and claim returns can run as high 20%.
The field, with $300 million in assets, is small but growing. In Paris, the Art Exchange has plans to publicly list at least six pieces and sell shares to investors. The Russian asset management firm Leader — controlled by close associates of Vladimir V. Putin — created two art-related investments. Last summer, Russia passed regulations to allow art to be turned into securities, the second to do so after India.
The idea is simple: a few big investors put up money to help a money manager buy paintings. Smaller investors buy ownership units, whose values are tied to the underlying art. For the privilege, they pay fees.
When investors want to cash out, they have to trade the stakes — just as early owners of Facebook have sold some shares on secondary exchanges.
The idea could spread beyond high net-worth individuals with an appetite for risk. A case in point: art research firm Skate's recently offered an iPad application for art enthusiasts to research their favorite pieces.