Investments in art
According to the latest Art & Finance Report by Deloitte Luxembourg and ArtTactic, the Alternative Investment Fund Managers Directive (AIFMD) will help increase the attractiveness of arts and collectibles funds. The directive will draw together existing structures and simplify market distribution.
Managers of investment funds will thus be able to broaden their range of structures by offering secure long-term investments. This development comes at the right time given that in China – so far the most promising market in terms of art – the market has been declining since 2012.
Out of an estimated 83 art funds worldwide, 58 have been set up in China since 2009. The global sector accounts for 1.62 billion USD in assets under management, an increase of 69% in 2012 (it totalled 960 million USD in 2011). Despite the positive development on a global level, the Chinese art market only raised an estimated 367 million USD in new funds in 2012, a decline of roughly 150 million USD compared to 2011 (506 million USD in 2011). The Chinese government, which used to push the art sector, recently withdrew its active promotion due to trading irregularities in the Chinese art market.
However, the potential of the tangible assets sector is not yet fully exploited in Luxembourg. Statistics collected in the framework of the Art & Finance Report showed that Luxembourg private banks are still hesitating to benefit from the existing potential, though the demand for those investments is increasing. Only 18% of the surveyed banks will likely include art funds in their portfolio in the near future, while 63% of the surveyed wealth managers would like to be better informed about the potential of art funds. Obviously, the main problem consists in a lack of knowledge of the art market, which is generally considered poorly regulated, illiquid and or opaque. Other obstacles are the small size of the market and its flat growth in Europe. Clearly, investments in art require careful consideration and expert advice.
Still, the lack of viability and liquidity of art funds will likely become an asset, given that the current economic situation in the Eurozone thrives on investors investing in more conservative investment opportunities. Another fact in favour of art funds is the safety aspect in terms of portfolio diversification.
As an alternative investment, art and collectible investments will certainly gain in importance. In Luxembourg there is also the fact that in 2014, the new freeport for fine art, wine and collectibles will open and attract more business from around the art field, such as auction houses, galleries and specialized insurance companies. EA