Sucheta Dalal :Art attack: International art fund managers shy away from Indian market
Sucheta Dalal

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Art attack: International art fund managers shy away from Indian market  

May 13, 2010

 The global economy is returning to normalcy and is showing signs of recovery. Investors are now showing interest in the global art market. However, according to international art fund managers, the Indian art market still needs to stabilise from the speculative prices witnessed during 2007-08.


Philip Hoffman, CEO and founder of the Fine Art Fund Group, believes that the Indian art market has gone through a lot of speculation and needs to stabilise further. “We believe that this market saw a great deal of speculative purchasing in 2007-2008 and we would like to see the market stabilise before we enter for investment purposes. Nevertheless, we do believe that there are excellent works of modern and contemporary Indian artists that will come up for sale, both privately and at auctions and we will be closely following this market.”


The UK-based Fine Art Fund Group is one among the few asset managers who are active in the art market arena, offering access to a wide range of sectors in the global art market.


After launching funds for the Chinese and the Middle East art markets, the group had planned an Indian fund launch.

During 2007-2008, when the Indian art market was enjoying a golden period, there were speculations that the Fine Art Fund Group was planning an Indian fund. However, since then, the company has held back its plans to enter the Indian art market.


What held back this group from entering the Indian market? “In light of the changes in the market in general and in the Indian art market specifically, we decided to postpone the launch of the Indian Fine Art Fund for the present until we receive further significant interest from investors,” said Mr Hoffman.


While the group is still wary about launching an India-based fund, it has performed well in its existing global funds. The group’s first fund named ‘Fine Art Fund I’ reached the end of the designated investment period and the first cash distribution to investors was made in the final quarter of 2009. The Fine Art Fund was the first fund of its type to invest in art as a worldwide asset class and continues to be the only one to do so on this scale.


The company claims an average annualised return on assets sold at 34% and cash-on-cash returns at 55.88% on this first fund. The group has also stated that the fund is well-guarded against the current instability in the art market as it will no longer be purchasing artworks, but will be divesting all holdings over the next four to nine years. “Given the luxury of this extended time-frame, we are in a very strong position to wait until all areas of the market have stabilised, in order to maximise our intended returns,” says one of the company’s releases.


The second fund named the ‘Fine Art Fund II’ was launched in July 2006.The minimum investment was $250,000 in this 10-year close-ended fund, with a target return of over 10%, with capital returns after the fourth year. According to company officials, this fund had its final close in December 2008 and currently has an average annualised return on assets sold of 29%. The key factors of both these funds have been a diverse portfolio across five segments and a long period.


The fund’s portfolio construction has been in a diverse pattern with 30% to 35% in old masters; 10% to 20% in impressionists; 15% to 20% in modern art; 30% to 40% in contemporary art (1960- 1985) and 5% to 10% in contemporary art (1985- 2010). — Amritha Pillay

-- Sucheta Dalal