E-Paper
It is time to call the bluff on art funds that get around regulation
India’s art fund racket has reached inevitable conclusion. Investors—if that is the right word—are crying, and the so-called art fund managers are either giving excuses or paying back those who shout the loudest in little bits.
India’s art fund racket has reached inevitable conclusion. Investors—if that is the right word—are crying, and the so-called art fund managers are either giving excuses or paying back those who shout the loudest in little bits.
However, the performance of these funds is not the main issue, but the ease with which investment schemes of dubious legality or legitimacy are able to work their way around our laws governing securities.
According to the law of the land, ‘collective investment schemes’ can only be run by entities specifically permitted to do so.
The entities that run any investment fund as well as the funds themselves have to conform to some strict rules about how they are run, where they invest, and about valuation and liquidity.
Art funds and other ‘alternative’ investments typically work their way around the law by not advertising or openly contacting the general public. This enables them to claim that they are a private activity, with investors coming in by invitation.
By escaping the “public” clause, they get out of regulatory control. But then, this is just a fig leaf.
Typically, people read about these funds in the media, get in touch with those running them, and are invited to join. Those who buy into the story also rope in friends. Many are attracted by the “fund” tag.
Being out of securities regulations, there has been no check on these funds, or the veracity and realisability of the valuations they give to investors.
We are not speaking of the amount of Rs. 200 crore or so put in these funds, but the manner in which fake investment vehicles can get away with a minimum of subterfuge and whether we have a mechanism to prevent them.
Art funds have had an easier time than other investments that tread the borderline of legality but that’s mostly because they were gushingly written about by a gullible media and by the general smartness of the art world. Look hard, and you’ll find them no different from controversial tree plantations and gold pyramid schemes.
