Heidi Moore uses her New York Times Dealbook column to cover the waterfront on art funds. She says there’s about $300 million invested in art funds, about as much as disappeared after the financial crisis when the vast majority of 40 funds evaporated. Like the WSJ’s Heard on the Street column from last week, there’s not a lot of enthusiasm from the financial community for art funds:
This time around, some experts worry that art funds — popular mainly in emerging markets like India, China and Russia — will attract the wrong element. Art funds, they say, have the potential to provide an easy vehicle for money laundering or hiding assets. One investor familiar with the Russian market said that the investments could appeal to a rising class of political oligarchs looking to keep money out of banks, where it can be seized should they run afoul of powerful friends.
“Corrupt government officials who have money are always looking for ways to keep it, and to keep it out of the banking system,” said William Browder, the founder of the hedge fund Hermitage Capital, whose crusade to expose corruption in Russia got him blacklisted from doing business there and brought death threats.
Even the biggest proponents of art funds concede the market has a long way to go. Michael Plummer, a former Christie’s and Sotheby’s executive who founded the art advisory firm ArtVest Partners, said he doubted that the art funds would catch on in the United States, which has a heavily regulated financial system.
“It’s not going to get critical mass in the post-Madoff era until a major bank or auction house puts its name behind it,” Mr. Plummer said.
But financial firms may find it hard to penetrate the art community, a critical step when buying and selling paintings. The president of the Art Dealers Association of America, Lucy Mitchell-Innes, said she would never allow a young artist to sell artwork to a pooled fund. Ms. Mitchell-Innes is the influential co-founder of the contemporary-art gallery Mitchell-Innes & Nash in New York’s Chelsea neighborhood and is close to the estate of Roy Lichtenstein.
“Generally we resist seeing art as another financial instrument,” Ms. Mitchell-Innes said. “None of us go into this market to trade commodities.”
Given such conflict, some art experts worry that investors looking for deals may get stuck with less-than-desirable works. Art dealers are more likely to keep bargains for themselves, said Harry Smith, chief executive of the appraisal firm Gurr Johns, and increase prices when art funds come calling — if they work with them at all.
“The headwinds art funds are facing is that the things they want to buy are expensive, and the things that are cheap they shouldn’t be buying,” Mr. Smith said.
Can’t Afford a Picasso? How About a Piece of One? (Dealbook/New York Times)
