New York- By Linda Sandler and Christine Harper (excerpts ) Nov. 22 (Bloomberg) -- A dozen funds being set up by bankers and former auctioneers aim to buy more than $1 billion of artworks said fund experts, signaling rising interest in fine art as an investment. ``Art has become an alternative investment in a lot of people's minds,'' said Connie Middleton, a director of London-based art adviser Seymour Management and the wife of former Barclays Plc Chairman Peter Middleton, in an interview.
Yet art isn't necessarily a safe haven because prices can veer as trends evolve, said John Studzinski, a collector who is co-head of corporate and investment banking at HSBC Holdings Plc, Europe's biggest bank by market value. ``In periods of economic uncertainty people always try to create new asset classes,'' he said. About 12 art funds are in the works with most seeking to raise $75 million to $150 million each, said Ariel Salama, head of private banking at ABN Amro Holding NV.
They include London's Fine Art Fund run by Philip Hoffman, an ex- accountant at Christie's International, which is already buying art, and New York's Fernwood Art Investments, run by former Merrill Lynch & Co. sales director Bruce Taub, which like most of the fund candidates plans a money-raising next year. ABN Amro, the biggest Dutch bank, will launch a fund in February to invest in other art funds after ``several dozen'' requests from private banks in Europe, the U.S. and Asia, Salama said in a telephone interview. ``I have a file as thick as a telephone directory.''
Amsterdam-based ABN Amro ``would be disappointed'' if its own so-called fund of funds took in less than the $75 million to $150 million the other art funds aim to raise, Salama said. Lady Middleton said almost every banker she talks to at dinner parties and operas has considered starting an art fund for clients. The late James Hanson, chairman of the U.K.'s Hanson Plc, ``was always a believer in art as an investment,'' his son Robert said in a faxed note to Bloomberg News.
Paul Gauguin's 1899 ``Maternite'' painting took $39.2 million at a Sotheby's Holdings Inc. auction on Nov. 4, topping the French artist's previous record of $24.2 million. A Wassily Kandinsky painting valued as high as $30 million was unsold.
Advisers
Buying into an art fund may incur a 1.5 percent to 5 percent charge, said Spencer Ewen, managing director of Seymour, which investigated six funds for ABN Amro and is assigned to analyze another six by January to see if the bank should invest in them. The Fine Art Fund has a 2 1/2 percent front-end fee and a 2 percent annual management fee, Hoffman said in an interview. Advisers may be rewarded ``for bringing good deals to the table,'' Hoffman said. They'll also get a ``success fee'' when the fund is liquidated after investors get a 6 percent return, he added. The fund draws advice from 21 art and finance experts, Hoffman said.
Art Buyers
``I am compensated in a manner consistent with financial- industry practices, which means that it will be based in large part on the success of the funds,'' said Rachel Kaminsky, managing director of London's P. & D. Colnaghi & Co. gallery, one of Fernwood's advisers. She declined to give details. The Fine Art Fund's art buyers include London dealers Ivor Braka and Johnny Van Haeften. Nine of the 12 funds cited by ABN Amro's Salama aren't up and running yet, according to Seymour's Ewen. Only Hoffman's Fine Art Fund and two others that Ewen wouldn't name have raised money, he said. ``The funds are quickly coming into line on the fees to accommodate investors,'' he said. Hoffman has said the idea of a fund came to him while watching Christie's customers profit from buying Old Master paintings. He has probably raised $50 million to $80 million and may add more next year, said Seymour's Ewen. The Fine Art Fund has bought paintings from the late 14th century to the contemporary period and is preparing to sell six pieces at a profit, Hoffman said. He wasn't aware of a second fund operating formally yet, he said.
Brokerage Clients
Fernwood has been talking to Merrill Lynch and other Wall Street brokerage firms that might sell the company's planned art investments to affluent customers, and to ``seed investors'' who might put the initial money into the funds, Taub said in an interview. Taub said his experience as an art collector inspired him to launch Fernwood. He started buying Latin American works in 1989 when he was working for Merrill in the southwestern U.S. ``It turned out to be financially rewarding'' as prices of Cuban and other modernist works ``took off,'' he said. A company provisionally called China Investment Co. is meeting with investors and aims to raise as much as $50 million in the first quarter of 2005, said Toby Raymond of London-based Access Equity Management Ltd., which structures alternative investments.
Chinese Collectors
The China Fund will buy Chinese artworks in the west and seek to sell them in China, and expects to profit from Asians' passion for buying the art of their own country, Raymond said. ``We believe there are demographic, cultural and economic trends that will support a firm exit for the portfolio,'' he said. A Russian fund also has been promised money by investors, Seymour's Ewen said. UBS, Citigroup Inc. and JPMorgan Chase & Co. are among the banks that have in-house teams of art advisers to help wealthy clients collect and maintain art. Citigroup, which has advised collectors since 1979, doesn't offer art funds, said Jeremy Apfel, a spokesman in London. If 12 art funds each raised $150 million, their $1.8 billion of equity would equal about only 8 percent of art purchases and sales. About $22 billion of paintings, sculptures, drawings, installations and other artworks are bought and sold in a year, said Joe La Placa of Artnet AG, a Frankfurt-based online gallery and data company.
`A Good Idea'
``Art prices go both ways, so caveat emptor,'' said Christie's Curiel.
--Editors: Ruane, Hoelterhoff, Schatz.
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