Lifestyle: Investing In An Art Fund?
This edition of the Family Office Association Newsletter features insights on investing in an art fund by Lawrence M. Shindell, J.D., Chairman & CEO of ARIS Corporation
With recent art prices reaching record highs across nearly every collecting genre, medium and period and art being dubbed “the new asset class,” art investment funds have returned to the marketplace as viable alternative investments. Still an emerging industry, there are now an estimated fifty art funds in the United States and new global sectors such as the Middle East, Asia and Russia ranging in stage of development from capital raising to buying fund assets. Investors in these art funds, who are often individual private collectors with an afinity toward and considerable experience with art, are increasingly viewing art as no longer purely a cultural pursuit but as serious monetary investments as well.
Given the basic strategy of any investment to “buy low and sell high,” with art being no exception, the idea of investing in an art investment fund might seem easy – funds conduct due diligence on certain sectors of the art market, acquire undervalued artworks at low price points, sell their artwork when valuations have peaked and thus succeed in a classic well-tested investment strategy.
This article will focus on a paramount issue in art fund investing: namely, how art funds will manage the core risk of defective legal title to the art that the fund buys and sells, especially when the fund publicly exposes the art through publication and exhibition to enhance its value proposition but at the same me unavoidably exposes it to potential claims. An art fund’s goal and duciary duty toward its investors is to secure returns according to best practices and efforts. However, an art fund’s total loss of one of its artwork investments, or even partial loss through settlement or expenses and costs expended in litigation defense, because of a title dispute on an artwork could significantly diminish the fund’s investment returns for many years.
View the Newsletter in full: Newsletter: Lifestyle: Investing In An Art Fund?
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