Art Investment Funds (AIFs) are private investment vehicles. They are aimed at gaining interest through the purchase and sale of artworks. They are managed by a professional investment manager or an art consulting firm that receives a financial reward. Art Investment Funds are the good way to invest in Fine Art. Those are the main reasons why people invest in AIF:
- Increasing tangible wealth to traditional investment portfolios act as a hedge to inflation and manipulation of stocks and bonds markets.
- Not every art piece increases its value. Investing in art through AIFs means acquiring an amount of art pieces that probably a traditional investor could not reach by its own without increasing risks related to the intricacies of the art markets.
- As an AIF investor, your could have the chance to enjoy the art pieces in your office or house.
Axifia Fine Art Management help investor, collectors and AIFs to take good decisions as acquisitions and sales advice, taxation, insurance, transport and leasings.
The company participates in art investment funds in very different ways. Art funds advised by Axifia have a group of specialists to perform everyday tasks. Our team has experts in the art market, experts in insurance and transport of the artworks, risk managers, and financial and tax advisers. The art fund advisers and related staff develop a series of activities such as:
- Identifying potential acquisitions
- Raising the capital to launch the fund
- Managing investor relations
- Performing the administrative paperwork of the fund
- Exhibiting artwork from the art fund through exhibitions and loans to museums.
- Advise of investments including transportation and insurance for the works.
- Monitoring the markets of the artists and artworks that make up the fund.
- Advice of the best timing for the orderly sale of the works that make up the fund.
If you are a collector, investor or AIF manager and need our professional advise, please don’t hesitate to contact us.
Learning more about Fine Art investment funds
The characteristics of art investment funds which follow, explain the general operation of art investment funds. Although these vary for each individual case, throughout the following paragraphs potential clients are offered an overview of art investment through art fund vehicles.
Art Investment Funds (AIFs) are private investment vehicles. They are aimed at gaining interest through the purchase and sale of artworks. They are managed by a professional investment manager or an art consulting firm that receives a financial reward.
As Axifia Fine Art Management has always been focused on art investments, our starting point is understanding how the global economic situation is mirrored in art markets. Those markets are characterized by a gap in the regulation by the authorities, poor information about transaction prices, non-market transparency, subjectivity of value, and lack of liquidity inherent in art. Those who offer this type of investment vehicles argue that it is these characteristics that create a significant opportunity for experienced art professionals that can be exploited to the benefit of the fund’s investors. Taking up a contrary position, critic groups suggest that the lack of transparency and liquidity in the art market are such that investments are located between riskier investment assets. Our expertise in emergent art markets together with our knowledge in both traditional and emergent art producer markets, knowledge of the intricacies of art taxation and international regulations make our clients embrace both investment and art enjoyment, forgetting about the complexity of dealing with art market agents.
What's the typical art investment fund functioning?
Art investment funds works in the same way that hedge funds do. Thus, the confident in art funds managers is required. This means that when investing through this investment vehicle, different strategies aimed at generating profits could be adopted during the lifetime of the art fund. Many of strategies are minor variations from the main one. In the same way, structural conditions as the lifetime of the fund and others related to buy & sell could be may vary. This is a typical procedure to avoid bearish or bullish periods which could rise buying prices or down selling ones.
Which are the time phases for art funds?
From the art fund set up, a period of capital collection is established. It may vary depending on the expectations of the fund manager. As a rule of thumb, an appropriate time lapse could vary from six months to one year. Meanwhile, the design of different strategies for acquisitions starts as capital grows.
Once the money-harvest season is closed, is time for the acquisitions. Depending on the chosen strategies that will be applied, thus would be focused on different segments of the art market.
As we said before, the lifetime of the fund in which artworks are owned vary depending on the economic conditions of the art market. In general, art funds are long-term investment funds (between five and ten years of artwork possession) and one to four years are needed for selling and divide profits among the investors.
How is the fund manager's work rewarded?
The fees charged by the fund manager to invest in art are primarily engaged in promoting and managing the portfolio of works from the collection, so as to obtain the best returns from them, and thus to derive maximum benefits to the manager and his investors. Generally, the fund manager charges a yearly management fee between 1% and 3% of the value of the fund’s portfolio and a success fee of 20% of the profits from the sale of the fund’s assets.
What is the profile of investors in art mutual funds?
In its early stages, the industry of art funds had to face great challenges to achieve a minimum of capital. The major investors in hedge funds and private equity funds were normally university endowments, pension funds, and insurance companies that have been reluctant to fund investments in art. Thus, the art fund managers in the early years had to rely on “family and friends” investors or angel investors for collecting enough capital to launch the fund. Investing in art funds are recommended to risk-profile investors. Assuming that risk, there are three reasons that prompt investors to participate in art funds. On the one hand, the desire to diversify. In periods of market volatility or of creating inflation, funds that invest in tangible assets have demonstrated a very good performance, uncorrelated to stock prices. On the other side, taking the risk, the rewards of a well-managed art fund can be very substantial when compared to any other financial asset. Finally, given the possibility of acquiring artworks by its own, the carrying out of such acquisitions through an art background is a double diversification, as it participates in the acquisition of a greater number of works.
Depending on the country in which the art investment fund is structured in, the rules applicable to investors vary. For example, in the U.S. this type of fund is not offered to the general public, investors must meet specific economic conditions related to income and equity when art fund is over a million dollars.
What are the investment strategies used in these funds?
Unlike mutual funds and other regulated investment vehicles, art funds are not limited by contract or under the law as to the choice of investment strategies are concerned, so they can use a variety of strategies for cart investment. As a result, it is important to understand the differences between strategic moves, and understand that each strategy or a combination of them have varying degrees of risk and reward.
The main strategies used normally for art investment funds include “buy and hold” traditional strategies. The so-called geographic arbitrage aims to take advantage of sale price differences of works of certain artists in different geographic locations; drives works addressing strategies that seek to profit from issues affecting the prices offered by a specific work (ie, the issues relating to their condition, provenance, title, etc.) “regional art” strategies, that focus on investing in art in a particular geographic region (ie, Chinese art, Indian art, Russian art), “period” strategies , which focuses on investing in a particular period of art (modern, contemporary, impressionist, etc.) “emerging artists” strategies, which focus on investing in artists who are not yet established and therefore have the potential for rapid price appreciation, the strategies of “intrinsic value”, which involve investment in artist’s works received by the fund manager to sell at deep discounts to their actual value or potential “leverage” strategies which involve borrowing about art that is owned in the portfolio and use those funds to purchase additional artworks that are expected to produce higher returns than the costs during the loan term, the strategies of “art depressed”, that focus on the acquisition of works of art with great discounts collectors bankruptcy or insolvency; strategy of “ownership”, which include art acquisition fund together with third-party investors to share the risk of the particular investment provide greater diversification of the investment portfolio of the art background, “exhibition” strategies, seeking to increase the value of the portfolio fund artworks by placing these works in major museum exhibitions, “bulk purchasing”, strategies which involve buying large lots of art in order to achieve better prices and lower transaction costs, and ” technique”, strategies which focus on investment in a single type of artistic technique (say, photography, painting or sculpture) for which the fund manager has a particular experience art and operational capacity.
The art fund managers simultaneously use one or more of the previously stated strategies in order in order to diversify the approaches to the art market and thus achieve benefits for the fund’s investors. In the same way, the fund manager has the ability to weigh the acquisitions to the extent that you want to achieve the objectives and position against possible changes in trends or fund capitalization options that may occur during the period of activity of the fund.
Note that many of the above strategies are affected both by the number of works available that meet the fund’s investment criteria of art as the amount of capital that a fund of art can successfully employ before the benefits produced by other strategies decrease. Consequently, many art funds seek to limit the amount of capital they will accept.
Why investments through art investment funds are now growing?
In recent years there have been significant increases in the number of art funds that have been or will be released. Much of this growth is due to the recognition by the investment community, as the art market continues to offer a better investment than traditional stocks and bonds, which have generated over the past decade and likely for years to poor yields. Possession of art can serve as protection against inflation, especially in light of the monetary policies that have been established in many countries in response to the 2008 credit crisis and resulting recession. Given this economic outlook, art funds can yield benefits with little or no correlation with these traditional investments in bonds and stocks, helping to diversify the risk of the overall investment portfolio. Similarly, scarcity and information unlike the art market offers unique opportunities for arbitration, which can be exploited for the benefit of fund investors. Additionally, as most art investment funds are structured so that the manager’s compensation fund for her performance art involving significant profit sharing between fund manager and investors are choosing talented professionals art market to work or form art investment funds, so that profits are higher and profits after distribution continue offsetting the risk. In the Axifia’s Manifesto, you can easily appreciate our global understanding of the current economic situation and how Fine Art could become a reliable part of your investment strategy.