A fund for art’s sake
International art funds have under performed and not fulfilled their potential because they are led by financial and not art institutions. If knowledgeable experts were to invest, the returns could be higher, writes K. D. L. Khan

Although the stock market has gone down abysmally this year, the art market in India is booming. From merely a Rs 5 crore turnover in 1997— the current year itself will see the size of India’s art market expand to— hold your breath—Rs 2,000 crore. When the industrialist Guru, Swarup Srivastava daringly offered last year, Rs 100 crore for 125 paintings of Maqbool Fida Husain’s “Our Planet Called Earth” and other works, even before he had laid eyes on them, he signalled the growing trend of art as an investible commodity for future returns.

Neville Tuli, chairman of Osians Connoisseurs of Art, reckons there are nearly 600 serious Indian art lovers, in addition to foreign collectors. “Typically, in India, we have about 100-125 collectors who invest about Rs 1 crore a year and about 100 others who invest between Rs 50 lakh and Rs 1 crore. About 350 investors put in between Rs 25 lakh and 50 lakh on art”.

If you had bought a painting by Yusuf Arakkal in 1998 for Rs 45,000 it would be worth about 1 million rupees in 2006 or an appreciation of 22 per cent every year. But if knowledgeable experts like Tuli were to invest, the returns could be higher—100 per cent a year on the conservative side.

If you’d like a Husain or Mehta, or a Souza to grace your walls or your portfolio, you’d probably have to win a lottery. But even if you are an art investor, you have neither the money nor the savvy to find out which artist sells and will keep selling.

Now a solution has come in the form of the Art Fund, started by the famous auctioneering firm of Osians in Bombay. The fund, named after painter Nicholas Roerich, has been formed as a private trust under the Indian Trusts Act, and is a joint project between Osians and Oseta Investments. The plan is to distribute the gains from the sale of works to investors as dividends every six months. But in the initial stages, the Roerich Fund is very cautious and you can expect only a return of 15 per cent every year, although you can make a fortune, when you sell your fund shares at the end of the lock in period.

Osians say, “We have documented every public transaction in Indian modern art for the last 20 years, every transaction that comes to us is documented. So on a daily basis we know exactly what price has been achieved by which artist and for what painting. So we have data to calculate the daily value of the fund—NAV— on a regular basis”.

The fund (a three year closed-end fund) is one with a minimum investment amount of Rs 10 lakh. Osians will charge an annual fee equal to 3 per cent of assets, a maximum 6 per cent for expenses and take a 30 per cent cut of profits once the fund clears a minimum hurdle of a 15 per cent annual return.

With Osians’ own database of 780 clients and around 325-350 ‘bankable’ artists across the subcontinent, they are sure of the fund’s success and returns, offering the benefit of pooling resources to buy assets that might otherwise be out of reach to construct a diversified portfolio. Major artists from the subcontinent—India, Bangladesh, Pakistan, Nepal and Sri Lanka—who have history of at least 25 years, will invest the fund’s corpus only in artworks.

The artists, whose works lend value to this index include J. Sultan Ali, K.H. Ara, Ramkinkar Baij, Prabhakar Barwe, Manjit Bawa, N.S. Bendre, B. Bhattacharjee, Nikhil Biswas, Chttaprosad, Jogen Chowdhury, A.R. Chughtai, Biren De, M.V. Dhurandhar, not to talk of all-time greats like Tyeb Mehta and Anjolie Ela Menon.

With several of Osians’ 750 clients ready to put their money, the initial fund size is expected to be Rs 100 to Rs 125 crore. With a lock-in period of 36 months, and a regular income flow generated every six months, the Roerich Fund’s Tuli is hoping to prove that art is relatively liquid

But as per financial circles, why the international art funds have under performed and not fulfilled their potential is because they have been led by financial and not art institutions. No financial institution can understand the aesthetics and history of art as a result of which no financial success is sustainable in the long run. With Osians, where an art auctioneer manages the fund, one can expect better results.

As such the experts state “While both the art market and Osians have a lot going for it, invest at best only a small part of your portfolio (5-10 per cent) in its art fund. These are early days for such vehicles and some circumspection is not a bad thing”. —MF

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