Have You Considered Art Investment Funds?

Have You Considered Art Investment Funds?

What makes a piece of art truly great? Is it the art itself, or is it the artist who created it? Is art great because of its culturally iconic status, or because of what it represents? Art, after all is very subjective and what one person feels is worthy to be called a masterpiece, another person might find rather bland and unexciting. Some pieces of art are extremely valuable, like the Mona Lisa for example, while others are only worth a few dollars. In any case, there seems to be a growing number of art fans these days, especially among the wealthy. According to the CEO of one very successful investment management company, Larry Fink of BlackRock Inc., art is becoming a serious asset class. Recent record sales and big upside potential would seem to concur as more and more wealthy art fans are getting into the business of collecting art.

Looking to Make a Profit

So who are these players in the world of art investment funds? Many of the people who manage these funds are financial industry professionals who often have the experience, or at least a strong interest, in the art world. These art investment fund managers offer several types of services, including investor relations, fundraising, market monitoring, strategy development, and managing the disposition of a fund’s assets. In most cases, those who invest in the art are looking for an opportunity to diversify or hedge their investment.

Must Meet Qualifications

There are certain qualifications that investors have to meet. First and foremost, they have to be “accredited investors” according to SEC regulations. That means they have to be financially sophisticated institutions or individuals that don’t require as much protection as unsophisticated investors. Common examples of institutional investors include:

•Trusts
•Endowments
•Pension funds
•Family offices
•Sovereign wealth funds
•Insurance companies

If an individual wants to gain “accredited investor” status they have to meet at least one of three criteria: 1) have a net worth individually or with a spouse of at least $1 million; 2) must earn more than $200,000 a year individually; or 3) have a combined income of at least $300,000 for the last two years with a reasonable expectation of the same income level going forward.

Pros and Cons

As with most investment opportunities, there are both pluses and minuses to art investment funds. One advantage they offer is that they are not subject to the volatility of traditional investment markets like stocks and bonds, which means they give you another option to diversify your portfolio and build some strength in other areas. This can help counter losses you might take during periods of inflation and downturn. Art also usually holds its value well, which means you don’t have to worry about losing money on your investment. One downside for some investors is that artwork does not tend to follow traditional financial modeling. Art funds also usually require experienced professionals that can help advise on the purchase and sale of the art assets. Investing in art is not for everyone, but with a little knowledge and some expert advice art as an investment can be a lucrative endeavor, as well as a nice way to offset one’s investment portfolio.

We hope you found this article about “Have You Considered Art Investment Funds?” helpful.  If you have questions or need expert tax or family office advice that’s refreshingly objective (we never sell investments), please contact us or visit our Family office page  or our website at www.GROCO.com.  Unfortunately, we no longer give advice to other tax professionals gratis.

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Alan Olsen, is the Host of the American Dreams Show and the Managing Partner of GROCO.com.  GROCO is a premier family office and tax advisory firm located in the San Francisco Bay area serving clients all over the world.

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