The Wall Street Journal’s Word on the Street column warned over the weekend of some of he pitfalls of investing in Fine Art Funds. John Jannarone cites London’s The Fine Art Group and Kansas City’s The Collector’s Fund as popular investment vehicles with some limitations, like basing their reported returns only on the art they’ve decided–or managed–to sell:
The firms, whose first funds are no longer open to new investors, have generated annualized returns of over 25% on artwork already bought and sold. Of course, both funds are still holding the majority of the art they bought, and it is unclear how much the remaining works will fetch. [… ] The big Achilles’ heel of such a vehicle is that it produces no income and the assets can be hard to shift if the market seizes up. And in the U.S., there are plenty of hurdles to overcome, such as finding a way to value art for regulatory-reporting purposes. But as the search for alternative assets continues to heat up, it is only a matter of time before an enterprising banker looks to create the first listed fine-art fund.
Mastering the Fine Art of Finance (Wall Street Journal)