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Impact Investing

IPE special report May 2018

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Art for investment's sake

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Any dealer will give prospective investors the same advice – spend as much as you can afford, buy the very best work available and be prepared to hold on to it for 10 years. This mantra is central to the ethos of Philip Hoffman’s new Fine Art Fund.
Hoffman, a former Christies finance director, is raising $350m (e310m) from pension funds, banks, family trusts and institutions to buy between 500 and 1,000 pieces of museum-quality art.
The fund, which closes the first round of fund-raising later this month, is sticking to works from five periods – Old Masters (1300–1800), the Impressionists (1860–1910), modern paintings (1910–60) and two contemporary periods (1960–85 and 1985– 2003). A second round will close at the end of the year.
Hoffman says the idea is to emulate the success of the British Rail art investments. By his estimates the fund produced compound returns of between 11.5% and 13.5%. Impressionist paintings owned by the fund returned 21% and overall performance could have been better were it not for a lock-in agreement with one of the auction houses.
He reckons that since investments are right at the top end of the market, investors can expect compound returns of 10–15%. Art prices can be volatile and are notoriously difficult to predict, so the fund is offering pension schemes a capital guarantee for the life of the fund. “It’s inexpensive and takes away the downside risk,” he says.
On the board are the banker Bruno Schroder, Lord Gowrie, former chairman of Sotheby’s, Jean-Claude Scraire, chairman of the CDP of Quebec pension funds, and Katrin Henkel of the German industrial family. Hoffman himself will manage the fund with Christopher Wright, former global head of Dresdner Kleinwort Capital, and Christies and Sotheby’s will provide annual valuations for the portfolio.
Hoffman maintains that, at the top end of the market, rarity of great pieces makes the fund relatively low risk. Tax incentives, particularly in the US, have cut the number of first-rate pieces in circulation as family trusts make donations to museums and public collections. “The reason why it’s a good long-term investment is that demand for quality pieces from museums and philanthropists is rising while supply is falling.”
To date one North American fund is contemplating an investment of $25m, as is one of the UK’s largest funds. Two wealthy families have agreed to participate, as have two unidentified international banks.

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