THE world’s first fine art hedge fund has been domiciled in Guernsey. London-based Artistic Investment Advisers’ Art Trading Fund is a three-year closed ended Guernsey vehicle - a cell of Art Investment PCC Limited.
It launched in the summer on the Channel Islands Stock Exchange and is expected to close at the end of this year having raised £25m.
The fund is regulated by the Guernsey Financial Services Commission.
‘We were looking for a jurisdiction that would provide us with both the security and yet flexibility to successfully establish and operate such an exotic fund and Guernsey, particularly with its strong, yet fair approach to regulation and continued tradition of innovation, was the perfect match,’ said Chris Carlson, a director of Artistic Investment Advisers.
‘All the way through the process of structuring, establishing and launching the fund, we have had constructive engagement with the Guernsey service providers and regulator and it is this positive approach and spirit of cooperation which have provided the foundations for the success of this fund.’
The Art Trading Fund is like a mutual fund, except that it buys and sells art instead of stocks.
The investors - whether institutional or retail - are not necessarily collectors or aesthetes, but simply want to diversify their portfolio.
What particularly distinguishes it from previous art funds is its strategy of buying out options [to sell at a fixed price] on stocks that are believed to have a high correlation to the art market, such as Sotheby’s and luxury goods companies like Richemont.
The idea of shorting these stocks is that if the art market falls, these will fall too and the fund can turn these options into cash.
GuernseyFinance chief executive Peter Niven said to have the fund domiciled here was a real coup.
‘It is a major endorsement of Guernsey’s funds environment and in doing so adds to the island’s reputation as an excellent location not just for traditional funds but alternatives such as funds of hedge funds, private equity and property, as well as the more esoteric asset classes such as fine art.’
The fund buys and sells via its global network of dealers, artists, auction houses and galleries. Usually works are kept for no longer than a year, with the fund focused on three- to 12-month returns.
A significant part of the business is in the work of living artists. It has the exclusive right to buy that of a group of them every six months.
The fund’s partners look at each one’s production and buy as many pieces as they want. The artist can sell the rest elsewhere.
The artists are not necessarily household names, but they have a track record and a following.
Advocate Sean Cheong, partner at Collas Day Advocates, advised on the formation of the fund.
‘Being the first of its kind, we had the opportunity to show how art could be made accessible to a wider investor base in a market previously dominated by a small and elite group of individuals and institutions.
‘Investors are starting to show an increasing appetite for exotic asset classes and the success of the Art Trading Fund means that Guernsey could be invited to create solutions for other similar opportunities,’ she said.
* The value of funds under management and administration in Guernsey reached a record high of £155.6bn at the end of June, an increase of £15.2bn (10.8%) over the previous quarter and £32.2bn (34.8%) year on year.
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