While Moscow was buried in smog this summer, its regulators, specifically Federal Commission on Securities Markets and Ministry of Justice worked in concert with some of the most influential domestic financial institutions to launch a new regulation that allows for art securitization and creation of art funds to be offered to domestic and international investors, including Russian general public.
Leader, a powerful local asset management firm controlled by Putin loyalists, launched two closed end art funds on August 27 and is expected to complete subscriptions by the end of November. Skate’s has learned that once initial subscription period is over, Leader’s larger art fund … can raise anywhere between RUR 2 and 6 billion (US$ 63 and $189 million) in assets, and significant portion of those are expected to be large collections contributed to the fund in exchange for the fund units.
This is a massive experiment considering that we estimate the entire global art funds industry to be within US$ 300 million in net asset value of funds available to outside investors … Skate’s has learned that at least two more well established Russian asset management groups are scheduled to launch their art funds by the end of the year.
Salmon explains the scenario:
In other words, this is an art fund which powerful Russians buy into by handing over art rather than cash. The valuation of that art will be set by the fund, not the market — and of course if you’re a friend of the managers you might expect to get a particularly attractive valuation. Essentially, you swap full ownership of one big illiquid asset into partial ownership of a large pool of assets.
Salmon has the following assessment:
The art market is broken, we all know that — but so long as everybody knows that the market is broken, there’s a limit to how aggrieved they can reasonably become if they go in with the idea of art being some kind of investment, and end up losing money.
But Marion Maneker, the eternal cheerleader of all things art market positive, thinks Salmon is wrong about the art market, and he is simply recycling an argument he made five years earlier about the art market. He says things have changed:
In the five years since Salmon wrote that post [about the art market being broken], the secondary market has grown and the pattern of sales has turned further toward secondary sales. We’ve also seen a massive rise and fall and rise again in art prices. That seems more like a market that is functioning, not one that is broken.
Works of art are being distributed and re-distributed throughout the world using the fairly efficient method of market pricing. The only thing that seems to be broken for Salmon is idea of using art as an asset. That may indeed be true. And anyone who invests in art should understand that it’s not an easily traded financial instrument — and certainly not for the feint of heart.
So maybe the art market is doing exactly what it should be doing: frustrating those who want to make easy money.
I honestly don’t know what to think of all this, so I will refrain from commenting except by saying Russian art market roulette anyone?