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The Art of Smarter Wealth Management (PART 2)

The Art of Smarter Wealth Management (PART 2)

In this last of our two-part feature on Art investment, FAWM tells Kipp it’s a safer bet to use investment funds for art instead of going as an individual investor.

April 13, 2011 1:33 by

As interest in art as an alternative investment by HNWIs has grown recently, so has the emergence of investment funds focused on this unique asset class.

When considering whether to invest directly in art, there are important factors to consider:

  • Using the market intelligence of a fund manager, risks associated with art can be spread across a larger and more diversified portfolio. In theory, investors can spread the risk in a way that is difficult to achieve with direct investment in individual works.
  • An art fund structure can reduce transaction and other costs by investing in art on a “pooled” basis. In selling art at auction, these costs may be considerable, often approaching as much as 30 percent, after the buyer’s premium and the commission paid by the seller.
  • Works of art acquired by an art fund are typically selected by experts in their field. Locating the right works of art to buy and disposing of them at the right time requires expert advice that may not always be available to individual investors. Expertise and being close to the market is a significant competitive advantage.
  • There can be tax advantages to being in a fund. An art fund may be structured for a tax-efficient means of investing. Vitally, the potential long-term benefits of art to a portfolio must be balanced with other client specific requirements, such as liquidity needs and time frames. Riskier assets such as art require longer holding periods for positive returns.

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