Most people think art investment involves pitching up at a gallery, pointing at a piece and forking out thousands of dirhams, but high-end investment is far more sophisticated than that. The Middle Eastern Fine Art Fund has a minimum investment of Dhs370,000, but can bring in returns of up to 80 per cent. You won’t actually walk out of a gallery with a painting under your arm (the fund will invest on your behalf), but you can borrow some seriously amazing art to hang on your walls, and when you get sick of it you can just swap it for something else. Johannes Glas talks us through how the system functions, as well as telling us what art to invest in now.
In a nutshell, how does the art fund work?
The main objective of the Middle Eastern Fine Art Fund by Addax is to provide investors with the opportunity to achieve long-term capital appreciation through investments in high-quality contemporary Middle Eastern art. The fund is a five-year closed-ended fund with two possible one-year extensions. Addax Bank is the regional representative of the London-based Fine Art Fund, which has a strong track record in art funds – it manages the fund and selects the art.
The minimum commitment is high – around Dhs370,000. But the predicted profits (of between 20 and 80 per cent) are impressive. How do you calculate these profit margins?
The figure of Dhs370,000 is actually quite low compared with other funds, where the minimum commitment can range from Dhs920,000 to Dhs1.84 million. The historical returns in the sectors of the market in which we invest average between eight and 12 per cent. We seek to outperform these returns, with a target return of approximately 20 per cent.
All investments carry a certain risk. How risky is investing in the art fund compared to others?
Investment in art can reduce portfolio volatility because of the low correlation between art and monetary assets. It is an excellent hedge against financial market downturns, especially as the top sectors of the art market tend to show little or no correlation to stock markets.
Do you ever get to see the art in which you have invested? Are you able to hang it on your wall?
Investors in the fund can borrow the works of art to hang on their wall through our ‘art borrowing’ structure. The manager has the discretion to allow those investing to borrow works of art held by the Fund valued at up to three times the level of their investment. A portion of the rental fee is reinvested in the fund. Another opportunity to potentially hang the art on your wall is through ‘co-investment opportunities’, where the fund and partners can share in the purchase of a work. This allows for short-term high-yield growth with no lock-up period on an individual picture.
A large part of the fund (up to 45 per cent) is concentrated on the purchase of Iranian art. Do Iranian artists offer a better investment opportunity than those working in the rest of the Gulf region?
The Iranian art market is historically performing very well. There is a strong collector base among Iranians; many of them live abroad and have been exposed to international art for many years. Many of the very established modern artists in the MENA region, such as Parviz Tanavoli or Farhad Moshiri, are originally from Iran and demand high ticket prices.
What has been your most profitable investment?
A work by another Iranian artist, Golnaz Fathi. I purchased her work in March 2007 for Dhs20,500. A similar work from the same year was sold only a year later at Bonhams’ Dubai auction for Dhs419,000.
If you could buy any piece of art created by a contemporary Middle Eastern artist, what would it be?
It would be fantastic to own a piece by Iranian artist Sohrab Sepehri. He is probably the most important master of modern Iranian art and his work is extremely rare. Most are owned by institutions in Iran, and many books have been published on his work. Another artist I really admire is Parviz Tanavoli. He is one of the very established modern artists, and also happens to be originally from Iran. Then there’s Dia Azzawi, an Iraqi-born painter: an exceptional, world-class artist, art consultant and author who has published many works on Iraqi contemporary and Arab art. He is a prominent artist who has played a great role in the promotion of Iraqi and Arab art to a wider audience.
But remember that these are my personal views – this shouldn’t be taken as direct investment advice without further consultation!
For more on investing, email Johannes Glas, vice president of the Investment Group at Addax Bank, at firstname.lastname@example.org
1. Only invest in art you like. That way, even if you can’t sell it, at least you can appreciate it hanging on your wall.
2. Only invest with a trusted partner that has a strong knowledge of art and all the right contacts to buy or sell.
3. Stick to artists that have already been accepted into the big auctions at Sotheby’s, Christies, Bonhams etc.
4. As a newcomer, don’t invest the majority of your wealth in art, but increase your exposure gradually (ideally, not more than 5 per cent of your net worth should go into art).
5. If you are seriously interested in investing, contact a noted art fund for further advice.