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  1. Wealth
June 2, 2011

FinAlt: A passion for art investing

By Spear's

This spring, Steve Cohen of SAC Capital Advisors sold an Andy Warhol painting (“Liz #5”) for a cool $27 million

By Mary Campbell, Senior Reporter

This spring, Steve Cohen of SAC Capital Advisors sold an Andy Warhol painting (“Liz #5”) for a cool $27 million.

The deal wasn’t one of the biggest sales of the past decade (it wasn’t even the biggest sale involving Cohen—that title goes to a Willem de Kooning, “Woman III,” for which Cohen is believed to have paid David Geffen $140 million in 2006)—but it did serve to highlight the investment potential of art.

Past attempts to harness that potential through art funds have met mostly with failure, but in today’s economic environment, says Enrique Liberman, investors are once again looking to art as a store of value. Liberman, who chairs the art law practice group at the law firm Tannenbaum Helpern Syracuse & Hirschtritt, is the president and chairman of the board of the Art Fund Association, a trade group for art funds. He told FINalternatives during a recent phone interview that “passion” funds are in:

“You’re seeing the growth of what are now called ‘passion’ funds, which are investment funds that invest in basically, items of luxury and passion…So, you’re seeing rare gem funds, fancy diamond funds, rare musical instrument funds, rare coin funds…any particular rare, luxury item that people will always want and of which there’s a limited supply.”

Art, he says, is one such luxury item, and funds focusing on art are part of what he terms the current “explosion” of passion funds. Getting a sense of the art fund landscape, however, is not easy. Says Liberman:

“Art funds are privately offered investment funds and, accordingly, they have to comply with the various restrictions on general solicitations of capital markets…There are a lot of art fund managers out there who are probably counseled by their attorneys [don’t] open your mouth, don’t give interviews, don’t mention your fund and just go and solicit accredited investors with whom you have a pre-existing substantive relationship…”

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ARTFA is in the process of creating an art fund registry, and Liberman says he knows of 25 existing funds and 12 in the process of launching. Most are offshore vehicles, although many of them, he says, have feeder funds for U.S. investors.

“I think that there’s definitely a growing recognition of art as an alternative asset class; it’s an established asset class…it can provide consistent, long-term, returns, it’s an important inflationary hedge, especially when you’re looking at the monetary policies of Western governments both here in the United States and in Europe.”

The problem, he says, is that to attract the attention of the large banks and the high net worth individuals who can take art to the next level as an asset class, you need art funds with successful track records—and those are as rare as Ming vases and beardless Van Gogh self portraits.

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