Birth of the Art Trading Fund: Fine art and finance collide on cutting-edge

May 30th, 2007

With the art market reaching new highs, the plague of middlemen taking portions of multi-million dollar sale prices rises, ultimately decreasing the seller’s proceeds (Christie’s typically takes 20% of the first $500,000 and 12% of the rest of the work’s sale price). As a result, a new hedge fund known as the Art Trading Fund was born with hopes of exploiting the art market’s current inefficiencies. Founded by Justin Williams, an investor well-versed in the sale of highly-priced fine art, and partner Chris Carlson, former trader and Deutsche Bank and UBS, the fund hopes to have raised more than $50 million by the end of the summer.

By organizing a group of living artists, the fund will sell directly to a network of buyers, maximizing artists’ profit while bypassing the gallery fee added to art bought on auction. And since living artists are constantly producing work (ideally), they can be viewed as income-producing assets, with an average yearly earning of nearly $5 million. Indeed, like any major fund, the Art Trading Fund is not risk-free; it relies heavily on artists’ production of quality works. Though today, some names alone, like Hirst and Koons, equal dollars.

The art fund will also purchase works from people forced to sell due to circumstances such as divorce, debt or death, quickly cashing in on the works value.

The fund exists, in part, due to the belief that higher prices are luring buyers to take larger risks. And while this leaves buyers more vulnerable to heightened losses if this mounting trend is short-lived, Williams and Carlson have calculated that the current art prices are well below their peak of the 1980s when adjusted for inflation. — Andrew Eisen

Art Trading Fund [Website]

Painting by numbers [The Economist]

A Vigorous Art Sale Makes Auction History [NY Times, archives]