Art Investors Lured by 12% Return Offer by $80 Million Fund

Investors are being invited to join a European-based group that plans to buy about $80 million worth of art and forecasts annual returns of 12 percent.

The Art Collection Fund will acquire high-quality modern, contemporary and even tribal works over a four-year period. The pieces will be sold after six years, or earlier, through private sales and auctions, the Luxembourg-based company said in an e-mailed statement.

“The fund is aimed at people who want to invest in art and who haven’t time to be collectors,” the fund’s founder and chief executive, Stanislas Gokelaere, 43, said in an interview. “We want to educate them and bring them close to this world.”

Investors are diversifying after returns declined from financial markets and real estate. Still, some funds that look to art as an alternative asset class have struggled to raise money or prove themselves as consistent providers of returns. In 2009, New York-based Skate’s Art Market Research delayed a review of such vehicles after several failed to achieve their target capitalization.

Gokelaere, a former head of mergers and acquisitions at the brewer InBev, is an established French collector of tribal art, as well as of modern and contemporary works. Bernard Steyaert and Florence de Botton, former European-based executives at Christie’s International, are the other members of the team.

Avoiding Bubbles

“We’ll be buying blue-chip works priced between 100,000 euros ($130,400) and 3.5 million euros,” Gokelaere said. “We won’t acquire cutting-edge pieces and we’ll be concentrating on slightly lesser-known names that appreciate in a slower, stronger way. We want to avoid bubbles.”

Works by second-tier abstract expressionists Joan Mitchell and Arshile Gorky were suggested as possible investments.

About 65 percent of the collection will be devoted to modern and contemporary art, Gokelaere said. Participants will be able to borrow and live with works equivalent to the value of their commitments.

The minimum investment in the fund, scheduled to open formally in April, is 500,000 euros. Investors will be charged 2 percent per annum management fees and 20 percent of the net proceeds.

So far, the fund has attracted unconfirmed commitments of about 10 million euros -- half the targeted first closing --from investors in Belgium, Switzerland, Luxembourg, Italy and the U.K., according to Gokelaere. The total target capitalization is 60 million euros.

Price Rises

The international market for art-investment funds was worth an estimated $960 million last year, up from $760 million in 2010, according to a report by Deloitte Luxembourg and the London-based research company ArtTactic published in December last year. The industry is relatively small compared stocks and hedge funds.

Institutional investors continue to be wary of art, citing the market’s lack of liquidity and transparency, as well as its high transaction costs and volatility. Some wealthy individuals are more positive about the model after dramatic price rises for certain names since the low of 2009 after the collapse of Lehman Brothers Holdings Inc.

A private collector entered eight abstracts by Gerhard Richter for auction at Sotheby’s New York in November 2011. All sold above their high estimates, with a 1997 “Abstraktes Bild” in purple, red and blue fetching a record $20.8 million. The buyer -- Lily Safra, widow of Brazilian banker Edmond Safra -- donated it to the Israel Museum.

Contemporary Surge

Sales at Sotheby’s and Christie’s evening auctions of contemporary art surged to $1.7 billion in 2011, an increase of 35 percent on the previous year.

“The climate for funds is as favorable as it’s been for some time,” Anders Petterson, founder of ArtTactic, said. “The sense that art is an asset class is gaining momentum. The funds are now being tuned to be part of the ecosystem rather than a parasite. They give wealthy people the opportunity to be part of the lifestyle.”

About 25 such investment vehicles, mostly based in China, came to market in the first half of 2011, according to the Deloitte report. These include the Brazil-based Golden Art Fund.

Freeport Plan

Luxembourg is an emerging hub of such investment. Gokelaere’s Art Collection Fund will join similar vehicles devoted to wine, watches and jewelry run by Elite Advisers in the country’s low-tax economy. Fine Art Transports Natural Le Coultre SA, a Swiss-based company specializing in the storage and shipping of artworks, is planning to open a Freeport there in 2014.

“This is the back office part of the art world,” Gokelaere said. “It’s something that Luxembourg consciously wants to develop. London and New York will remain the front.”

Investors are trying to beat returns from financial markets. The FTSE 100 Index, which includes the 100 biggest companies that trade on the London stock exchange, fell 5.6 percent last year after posting gains of 9 percent and 22 percent in 2010 and 2009, respectively.

Information: http://www.artcollectionfund.com/

(Scott Reyburn writes about the art market for Muse, the arts and culture section of Bloomberg News. Opinions expressed are his own.)

(Adds Lily Safra purchase in 13th paragraph and FTSE performance in last paragraph.)
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