Did you know that there was a way to invest in art while leaving the buying and selling to others and without having to spend time gaining knowledge and expertise that otherwise would be helpful, if not necessary? There is and the vehicle is called an art fund. Perhaps you’d like to diversify your investment portfolio or are looking to generate a passive income stream, or simply want to get in on a growing market. Keep reading for what you need to know about understanding art investment funds.
Exactly What is an Art Fund?
To put it simply, an art fund is a privately offered fund that aims to generate returns through the purchase, managing and selling of art. Funds allow you to buy just part of a work of art.
How Does it Work?
Basically, an art fund is typically run by a manager who gets a portion of any returns the fund delivers.
There’s what’s called an investment period that you should know about. It’s during this time that fund managers put together a collection based on expert guidance. After the collection is created, a strategy is developed to enhance its value. When the works are ultimately sold, proceeds are divided among investors, minus any expenses.
Also, understand that this is a long-term investment; it can take a few years to see returns. But remember that, if you’re in the art market on your own, it can take years to develop the know-how necessary to buy and sell. With a fund, art selection and strategy are up to the fund, which can vary in size, duration, and portfolio restrictions.
Why is the Art Market So Popular?
Art market participation has been trending upward for some time now. In fact, according to 2019 data from Deloitte, 81 percent of investors surveyed wanted art included in what their wealth managers offered. That’s an increase of 66 percent from just two years earlier.
In addition to witnessing marked price appreciation, investors know that, for the last decade or so, returns from traditional investments in stocks and bonds have been mostly lackluster. They also know that art funds are not subject to the volatility of the stock market, which the art market sometimes outperforms.
What’s more, because the market is unregulated, you have more art investment opportunities.
What are Downsides to Art Funds?
All investments carry risk and challenges, and art funds are no different. Transparency is an issue is art in general, although technology has helped mitigate that. In addition, the proliferation of funds has created a shortage of people who have certain knowledge and skillsets. But then, you don’t have to personally worry about that, since the fund manager is in control and will know the right time to sell the art while maximizing profits. And besides, going through an art fund is not as risky as purchasing a piece of art outright.
Do I Need a Lot of Money to Invest in an Art Fund?
No, and that’s the beauty of it. However, buying whole artworks and creating a collection generally does require relatively large sums, at least up front, and with low liquidity levels.
Now that you have a better understanding of art investment funds, you know that such funds are generally a good idea for those who seek to diversify their investment portfolios with an overarchingly stable asset class that isn’t directly tied to the stock market. If you are interested in learning more about art investment, the alternative platform Yieldstreet has some resources that can help.
