An Art Fund?
By Roger Nusbaum, AdvisorShares ETF Strategist
Over the weekend I found this article from Bloomberg about art as an alternative asset class in the portfolios of wealthy investors. Included in there was a link to a private fund only available to accredited investors. Ten years ago or so I wrote about a fund publicly traded in Europe (I think Switzerland) that offered access to art.
If you look, I am sure you can find plenty of private funds and other research making the claim that art does not correlate to the more common asset classes and I don’t doubt those claims. It is a good bet that investing in art will become more popular and someone will then figure a way to make access a little easier than a hedge fund-like vehicle as described above.
One crucial concept to investing that I should write about more is the extent to which simpler is better. While “simple” is relative to the individual’s experience, an art fund won’t be relatively simple for too many people.
I might also question the suitability for an art fund for most folks in terms of potential utility. Assuming the 4% rule, someone with $1.5 million of investible could generate $60,000 from their portfolio. That amount plus Social Security would hopefully make for a fine lifestyle for most people but put yourself in that investor’s shoes. How much of your portfolio would you want in something that you knew wouldn’t pay an income stream and that would be difficult to mark to the market.
In a similar vein, in 2008 I wrote about a publicly traded fund of hedge funds that was available in London and also in the US on OTCXX market. That fund is no more. To be clear, it was not a replicator and did not track a hedge fund index, it was a fund of funds along the lines of what Skybridge does.
I am as big a proponent of using alternatives as anybody but always in the context of moderation to help manage volatility and correlation of what is mostly an equity and fixed income portfolio.
The allure of things like fund of funds, art funds or other exclusive investments are always enticing because in part they prey on people’s egos. There was a commercial recently for reverse mortgages that mentioned “savvy people…” which is intended to create an “I’m savvy too” reaction.
I’m a sucker for a good story in that they all sound great. If you are too and you know this about yourself it is a lot easier to move on with your money still in your wallet.
A small allocation to two or three exchange traded products or traditional mutual funds that provide a reasonable basis for you to believe they can do what they say they will do most of the time is enough to do the job where the job is trying to smooth out the ride.
If you really want to “invest” in art, set your expectations low and plan on owning it for a long time.