Investors develop new appreciation for art, fine wine

Updated: 2011-08-12 08:16

By Karen Yip (China Daily)

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Investors develop new appreciation for art, fine wine

BEIJING - In April, Novel Asset Management Ltd launched a $100 million fund that invests in rare diamonds. Twelve art funds are said to be in the process of formation in London.

The Artist Rare Instrument Fund LLC, launched late last year, invests in top-quality, rare Italian violins, cellos and violas built by Antonio Stradivari, Joseph Guarnerius del Gesu and other renowned craftsmen from the 17th and 18th centuries.

Past attempts to launch passion funds - investment vehicles that offer significant long-term returns from luxury collectibles such as art, fine wine, diamonds, rare musical instruments and mint condition comic books - aroused little enthusiasm.

Strong interest

Market volatility and severe declines have reduced the attractiveness of many other investment options, such as equities, bonds and hedge funds, so it's not surprising that investors are increasingly attracted to passion funds, said Enrique E. Liberman, president of The Art Fund Association based in New York.

"More money from Asia is going into such funds. We've heard of a rare fancy colored diamond fund targeting China. The fine wine funds are going there too," he added.

High net worth investors no longer see such investments as an indulgence in expensive hobbies. Rather, the funds allow them to diversify investment portfolios based on more traditional assets and hedge against inflation.

According to the 2010 Hurun Wealth Report, there are 875,000 millionaires in China, a rise of 6.1 percent from 2009.

The growth in the number of Chinese millionaires has been driven by a rise in property prices, the recovery of the stock market and a generally strong Chinese economy, said Hurun Report founder Rupert Hoogewerf in a statement.

"For those who have the wealth, how many homes, cars, jets and yachts can they have? For the Chinese, they are more inclined to acquire tangible assets.

"Passion funds, which are a subset class of asset investments, provide an opportunity for portfolio diversification into an area that has historically had high returns and shown a low correlation with other asset classes," said Liberman.

Strong demand from China has driven up fine wine prices as well.

Last year, wine investors had stellar returns, with prices for top vintages rising 40 percent, based on the performance of the Liv-ex Fine Wine 100 Index.

That gain beat the return on the FTSE 100, which rose by 9 percent.

Fine wine investment specialists have forecast that the Live-ex will rise a further 21 percent this year.

Most Chinese millionaires, whose average age is 39, tend to keep a low profile. Their luxury possessions include watches, Chinese classical art and an average of three cars. Many are also drawn to art.

With China surpassing the UK as the second-largest auction house and gallery market and becoming a very important purchasing power, and with Chinese auction houses making record sales, "we see that there is an opportunity for art funds in China", said Daniela Sanchez, art advisory and investor relations associate at Fine Art Fund Group Ltd.

Although art as an investment class is still new in China, some early participants recognized the immense potential of the market: Noah Holdings Ltd, Beautiful Asset (Beijing) Management Ltd Co and Shanghai-based Terry Art Fund Management.

Chinese buyers

"Nearly all buyers in the Chinese art market are of Chinese descent, with Chinese buyers worldwide numbering somewhere between 5 percent and 15 percent and growing.

"The entry of mainland Chinese collectors has renewed the interest of Western, Taiwan and Hong Kong collectors," said Sergey Skaterschikov, chief executive officer and founder of Skate's Art Market Research, an art investment research house.

As the value of Chinese art continues to rise exponentially, funds investing in this asset class will need to raise increasingly large amounts of money to have an impact in the market.

What would be considered a large fund by US and European standards, perhaps exceeding $250 million, could become more commonplace, said Michael Plummer, a principal at ArtVest Partners LLC, an investment advisory firm.

According to Artprice.com, an art market information center, art global auction revenues nearly doubled in 2010 to $9.36 billion. China accounted for 33 percent of the total.

China Daily

(China Daily 08/12/2011 page14)