Passion funds deliver impressive returns, said panelists at Art & Passion Funds: The New Frontier in Alternative Investments, an event hosted by ACG New York at the Union League Club in New York on April 11.
From Stradivarius violins to Chinese porcelain, from fine wines to fine art, funds dedicated to the generation of returns through the acquisition, management and disposition of items of luxury and rarity are providing enticing investments unconstrained by the ups and downs of the public markets, explained Michael Sellinger, the founder of Cottelston Advisors, who moderated the discussion.
The success of passion funds is due largely to the basic laws of supply and demand.
“Production of great Bordeaux is down 20 percent from the ‘80s,” said the Wine Trust’s Tony Wion. “Supply is decreasing because, in order to make great wine, generally speaking, you have to use better selection. So every bunch of grapes has to be sorted by hand, and you have to hire more people. That’s how you make great wines.”
At the same time, demand is increasing. “There are more wealthy people every year,” Wion said. “As long as wealthy people continue to be into wine – and we’ve seen for centuries that they are – there will be less supply and more demand.”
The same principles are at work in the world of rare stringed instruments, explained Edward Papier, partner, Artist Rare Instrument Fund LP. A case in point may be found in the famous Lady Blunt violin, crafted by Antonio Stradivari in 1721 and once owned by Lady Anne Blunt, the daughter of Ada Lovelace and the granddaughter of Lord Byron. Back in 2008, the Nippon Music Foundation bought the Lady Blunt for $10 million. In 2011, it was sold to an unnamed bidder for nearly $16 million, more than four times the previous auction record for a Stradivarius violin. (Nippon Music donated the proceeds to the Nippon Foundation’s Northeastern Japan Earthquake and Tsnuami Relief Fund.)
The “passion funds” label is something of a misnomer, pointed out Bruce Wilcox, principal, Xiling Group, which invests in Imperial porcelain and other Chinese artwork. “Our investors are not collectors. They’re financially oriented. They’re not interested in Chinese porcelain. They’re interested in superior returns.”
For the fund managers, investing may be more art than science.
“Everything we’ve invested in is appraised at three to four times what we paid for it,” said Sandy Kemper (pictured), the founder of The Collector’s Fund, which invests in art by well-known 20th and 21st-century American artists. “But who cares? It doesn’t matter until it’s sold.”
“At the end of the day, you’re still dealing with a need to ascertain the quality of greatness,” said Kemper. “You can match at auctions what, say, Franz Kline paintings from ’58 to ’62 have sold at, but if you’re buying crap from that period, it doesn’t help. That’s why the diversification, expertise and discipline of a fund, most of the time, delivers superior performance to what you, as an individual, would get.”
For a slideshow of photos from the event, see "The M&A Scene: Art & Passion Funds - The New Frontier in Alternative Investments."