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Hedge Fund Monthly
 

The Truth About Art Funds

Michael Plummer, Principal and Jeff Rabin, Principal
Artvest Partners LLC
January 2012
 

The outstanding performance of the art market over the past 10 years, coupled with the trepidation many have about financial markets post-2008, has led to growing interest in art as an investment and increased dialogue about art fund vehicles.

Defining an art fund

The sheer mention of the term ‘art fund’ often stirs controversy. A contributing factor to the lack of understanding and agreement is that the term is broadly, and sometimes inappropriately, applied. Artvest defines an art fund as a structured investment vehicle with Offering Documents that is open to third-party investors for the purpose of financial gain. Everything from valuation methodology, to inherent conflicts of interest, to risk control and diversification must be sound, well-considered and documented. Properly created, an art fund will share similarities in structure to financial asset funds yet take into account the crucial difference that art is the underlying asset. Specialised expertise is essential to successfully manage such an entity.

Private Investment Partnerships (PIPs) are often conflated with art funds, creating additional misunderstanding. Unlike art funds, PIPs are not made available to outside investors and are simply groups of individuals who have pooled resources to invest in art or other assets.

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