There’s a shake-out under way among art funds, vehicles that invest in art and have hedge fund-like structures, high fees, and long-term lock-ups. Through the end of June, there were an estimated 72 art funds globally, with 55 in China and the rest in Europe and the U.S. That’s down considerably from the peak of 115 funds recorded in 2012, 90 of which were in China.
Assets under management also have declined, by some 40% since 2012, to an estimated $1.3 billion, according to a recently released report by London-based ArtTactic, a market research firm, and Deloitte Luxembourg. “There is mixed confidence. There is a positive trend for art and wealth management, and a negative trend for art as an investment,” says Adriano Picinati di Torcello, Deloitte Luxembourg’s advisory and consulting director.
That’s probably because the unregulated art market and strong demand for art funds has attracted scoundrels. Earlier this year, the Autorité des Marchés Financiers, France’s SEC equivalent, announced that it would bolster its scrutiny of nontraditional asset funds. The AMF said it would verify “a posteriori” that all risks attached to these investments are outlined.Previously:
The authority’s move came after an entity known as Marble Art Invest promised hundreds of investors a 16% per annum return on the resale of artworks, which, the French regulators noted, was “unrealistic in light of current interest rates.” The AMF fined the founder of the art fund one million euros ($1.3 million).
The U.K. has imposed similar regulations on marketing materials of “unregulated collective investment schemes.” Closer scrutiny in China revealed that 80% of the Middle Kingdom’s art funds were apparently finance vehicles for other investments; some leveraged artworks to fund real-estate deals. China’s Ministry of Finance and others are currently working on a new regulatory framework for the rapidly growing Chinese art market. U.S. regulators have been quiet because the U.S. art fund scene has been quiet, too.
Perhaps it’s no surprise that the ArtTactic and Deloitte 2014 Art & Finance report cites “tougher regulation on transparency and marketing” as partly responsible for the waning supply of new funds, which, in turn, is “hampering confidence” with investors. Maybe so. But we expect that, once the hustlers have been chased from the scene, new regulation and oversight will create a second wave of art funds....MORE
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