How to invest in fine art
The FSA’s ban on advising Ucis products means those interested in art have to look further for expertise.
When it comes to investing in art, the simplest way to proceed is to work up a comprehensive passion for it, visit a lot of galleries, read a lot of auction catalogues, buy a broad spread of work and hope that it appreciates in value over time.
Like any investment, however, art investing can be considerably more complicated. As a result, many investors who wish to include art in a portfolio would naturally gravitate towards choosing an expert to pick it for them.
For those that don’t necessarily have an eye for good art, or the money, storage facilities or knowledge of how to maintain such an investment, accessing this esoteric asset class through an investment vehicle could be the preferred option.
According to a 2011 survey carried out by Fine Art Wealth Management, an advisory firm that provides independent consulting, education, networking, and research to art investors and families with exceptional art wealth, there are more than 40 art and passion investment vehicles operating across 13 different countries, including the UK.
But a recent move by the FSA has made advising on these types of funds for UK retail investors impossible.
Art funds, alongside those that invest in wine, film and teak, are typically unregulated collective investment schemes (Ucis). Under new proposals from the FSA announced at the end of August, advisers will be banned from promoting these schemes and other products deemed as being ‘high risk’ to the average retail investor.
The rules were set out in consultation paper CP12/19 where the FSA provided examples of cases where older investors were advised to place their entire wealth into single Ucis products.
Gavin Stewart, acting director of policy, risk and research for the FSA, said: “This situation needs to change and so we are acting now to prevent these products being marketed to ordinary retail investors in the future.
“While we have found problems with a number of sales, we are not saying that all existing investments were mis-sold.”
Randall Willette, founder and managing director of Fine Art Wealth Management, adds that as the financial crisis continues in Europe, more sophisticated investors are increasingly focused on other real assets such as art and commodities in order to diversify their investment portfolios.
He says: “To date, the amount of capital raised by art funds in general remains low relative to mainstream alternative investments such as hedge funds and private equity funds, and so far they lack the size and scale required to attract most institutional investors.
“In 2009, a combination of factors - including the ongoing financial crisis, the Bernard Madoff scandal and loss of investor confidence - created a difficult capital raising environment for most alternative investment vehicles; art funds were no exception. Investors today are conducting wider-ranging and more in-depth evaluation of alternative funds than ever before as the past few years have brought risk management concerns into sharper focus.”