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Art market: masterful returns

Art funds let you own a share of a portfolio. Some funds have bested the S&P 500.

By Margaret Price/ Correspondent / April 14, 2011

Art collectors and art-fund investors who are getting high financial returns are starting to get noticed.

Phil Marden / Illustration

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New York

When The Collectors Fund, an art investment fund, debuted in 2007, art collectors Michael and Karen Herman were quick to sign on.

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The fund had sterling attractions. It specialized in American art of the 20th and 21st centuries; the chairman's family founded the Kemper Museum of Contemporary Art in Kansas City, Mo. The fund lends investors its art holdings on a rotating basis. And the investment results? A masterpiece.

In its three years, the nearly $20 million fund has returned 28.5 percent annually on sales from its collection. "That return beat art market indexes as well as the stock market," boasts Mr. Herman, who bought a Neil G. Welliver painting from the fund and upped his investment in the fund late last year.

Such financial gains among art collectors and art-fund investors are drawing notice. Amid a volatile stock market, a housing slump, and economic uncertainty around the world, a surge of money is flowing into art in quest of good returns, hedges against inflation, and, yes, the cachet of owning a Matisse or a Calder – or at least a share of one.

Such forces are fueling prices of top-tier art. Picasso's Nude, Green Leaves and Bust, for example, fetched $106.5 million last year, a record auction price for a single piece of artwork. They're also inspiring the creation of new ways for investors to access the mysterious and often illiquid art market. "Art is an asset class, and investors are starting to recognize that," says Enrique Liberman, chairman and president of the new Art Fund Association, based in New York City.

One sign of the broadening investor interest is the appearance of new art-market indexes and art databases, such as Skate's Top 5000, a ranking of premier artworks based on their auction prices. Experts say new art funds, which operate like private-equity funds for wealthy individuals, are also on the drawing boards after a decade in which many of those planned or launched fizzled.

Moreover, in the past year, two nascent art exchanges have started up, one in Shenzhen, China, and the other in Paris. Last July, according to published reports, Shenzhen's Cultural Assets and Equity Exchange launched the trading of shares in a portfolio of 12 artworks. This January, the Art Exchange in Paris began trading in shares of individual artworks from participating galleries. Initial shares were selling for €10 ($14) apiece.

The timing seems propitious: Last year, the Mei Moses All Art index rebounded 16.6 percent after a two-year slump, slightly beating the Standard & Poor's 500 stock index. The Mei Moses index, which tracks the returns of art sold at auctions more than once, also bested the S&P 500 over five and 10 years, data show.

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