Art Fund Proposal - Research Paper Example

13 June Art Fund Proposal Introduction: The selected sector to create the Art Fund Proposal is the Painting sector. The market structure of the painting sector and its patterns of consumption vary among geographical areas. The increase in consumption of paint is historically connected with an increase in the living standard. The market in Western Europe is comparatively mature and sales will thus enlarge moderately. In Central Eastern Europe and the CIS states, the current decorative paint consumption per capita is significantly lower than that of Western Europe. In the US, Art fund is used in numerous sectors. Painting is one among them. The paint market sector can be divided into two major categories, industrial coatings and decorative paints based on the end-use of the particular products. Besides segmentation based on the end use of the particular painting product, markets can also be divided based on the quality and price of the product. Paints are generally divided into three price and quality categories: medium, premium and economy. The size of each group differs by market area and country, depending on the local painting traditions, standard of living, styles of construction and available materials, the general construction and decorating trends as well as industrial activity and renovation. The major market trends and factors influencing the demand of coatings and paints are: General economic development. Construction activity and renewal markets. Level of home sales activity. Situation of the employment and customer confidence. Developing standard of living and rising up of middle class. Rising environmental awareness. Importance of interior decoration of the home and refurbishing. Level of the industrial activity. (industrial coatings) Art Market Size & Composition:  Art market is a network of worldwide fiscal activity in major world cities: London, Berlin, New York, Geneva, Paris, Tokyo, Hong Kong and Milan. Art market subsists only in cities with cultural and financial capital that attracts continuing concentration of marketplace activity. The US guides the world marketplace for modern art with 50% of sales level. Aggregate sales volume and pricing across the art market from every source (sales, dealers, galleries, private and auctions) are presently impossible to quantify, but at the same time there are obvious indicators and trends. Using international prices and auction sales as an indicator of rising market activity, it can be seen that modern art prices were up 22% in 2003. Contemporary art market is being driven by the arrival of a new demographic of younger collectors and buyers. “Modern art is currently the heart of the global art market. It is the densest and most profitable segment. 2011 was the best of the decade for the sale of modern works with particularly strong demand and an outstanding revenue total of $6.067B, representing 52.4% of total global art auction. In 2011, the revenue from Modern art was up $1.218 billion versus 2010 which was itself a record year” (Art Market Trends 2011 pg.9). Unlike the volumes in the securities marketplace where millions of firms and people participate in selling and buying financial interests, or the various commodities market where measures of primary or raw products are exchanged by means of standardized agreements, art market activity mainly pursues the demands of a more limited array of museums, private collectors and large business interests as the principal marketplace participants. It is so because creative artworks are not fungible like stocks, they have valuation challenges not likewise influencing securities. Therefore, due to the fact that the participants of the art markets are far more limited in number than the commodities or securities markets, for the reason that artworks are not fungible, and because art evaluation relies to a large extent on the enthusiasm and advice of various specialized analysts of the market, these limits each in turn dictate the market size and enhance the risk that some objects may be over or undervalued. Investment Strategy/Objectives: 1) To set up a painting fund to take advantage of the increasing interest in real assets. 2) To identify the strategy that will be used as a research and marketing tool in raising the necessary capital for the fund. 3) To find out the credibility of the investment proposal. Art Market Risks/Opportunities of Painting Sector: Opportunities: Art market in painting continues to have a strong attendance in major contemporary art fairs, auction sales and biennials and clearly affirms its position in the international current art market. The painting market is considering a larger interest in various younger artists, in addition to a more discriminating approach towards quality. US buyers have turned into a stronger power in the market. Risks: Speculation: Numerous US people think of art gathering as an additional method to invest money with little interest in the art itself. Several of the attractive modern painters are also identified as members of the millionaires club because their earning rule is painted in method that appeals to the western eye, according to a number of critics. There are insufficient well-trained curators who recognize contemporary painting art, and as a result there are not sufficient people capable of separating the wheat from the chaff. Lack of works quality. Presently about 80 or 100 artists of global stature supply the world’s demand. Requirement for a secure and steady growth. Furthermore, this high demand is extremely inflating costs. Works by second and third class artists can arrive at high prices too. Rising of ‘Fake’ market. The painting experts state that auction heroes be different from future recognized artists. Market dominated by auction, which is only a narrow band of what is going on. Political and economic rules still hinder the full growth of the art market. Art Market Performance/comparative performance of painting sector: The average yearly performance for old and current art market sector is greater than the one reported in earlier studies. This is mostly driven by the extraordinary results of the art market in the year 2007. The present performance abbreviation of the art market is less severe than the one experienced by art markets and equity markets in mid-1990s but it also impacts the correlation among the art and equity markets. “For the last two years, the correlation increased substantially to more than 50% for contemporary, modern and impressionist art sectors while remaining close to 0% for the Old Masters sector” (Performance and Correlation of art an Alternative Asset Class During the Current Financial Crisis para.3). The old paintings sector has long been a favorite of scholars, curators and established collectors, there are indications that this sector of the market is currently seeing changed interest from younger and extra geographically varied buyers. The instability in a lot of areas of the market over current years has too produced additional risk-adverse art buyers, of every age group, that are finding refuge in the less unstable costs in this sector. Even though a small number of sections of the market were left unscathed from the contraction experienced in 2009, average costs of Old paintings fell below 10% on aggregate against much more severe dips of 45% and more in the current market. A lot of old people report that the price of works for their age groups has actually never refused and always kept far or pace exceeded price rises. The best selling old artists still command multi-million dollar costs. On the other hand, there are a lot of areas of the market with comparatively small access points. “Even for the top selling artists in 2010, average prices ranged from $200,000 to $10 million, while the range in values was also very wide for each artist, particularly when all media are considered” (Mcandrew para.3). The market is driven much more than the Contemporary market by quality and scarcity, however, fresh talent and best quality works always attract the most interest. Investing in Art through the Fund (Advantages/Disadvantages) Disadvantages: Complex to assess cost unless one is well experienced and knowledgeable Valuations are extremely subject to two types of swings. It contains macroeconomic and microeconomic taste. Illiquid market Advantages: People tend to invest in things they love and things, which would bring them personal payment separately from the financial return. Lower risk factor and improved portfolio diversity. Appropriate for at all types of investors. Portfolio Construction (risk, return, correlation with other assets) Art funds are investment means, the return on which is associated to a portfolio of works of art acquired as conflicting to the bonds, stocks, property and goods that are the common elements of investment funds. The return of the financier is revealed by the optimism of the art market or by the choice made by the funds managers with due consideration given for precise acquisitions. The more planned the art market, the less perceptive the fund managers become to defeat other financial instruments. A portfolio is a collection of financial assets such as stocks, cash etc. It is constructed according to the risks of the investors, time and objectives of the investment. “Portfolio construction and risk management solution offers a flexible platform for assessing future uncertainty in a single, consistent environment” (Port Folio Construction and Risk Management for Fund Managers para.1). Investors looking for generating and examining a diversified portfolio of art fund investments are confronted with a difficult, time-consuming and expensive responsibility. For this cause, art fund of funds managers subsist to execute the creation and administrative task with prospective investors, efficiently distributing the costs between a large number of investors creating a portfolio of art fund investments to present steady returns. Art markets are compared with financial market assets such as large company stocks and bonds. However, they have very low and even negative correlations with financial market assets, as their risk-return distinctiveness is lower to equity and debt markets that they are never included in the competent position. The art markets are negatively correlated with small company stocks and long-term corporate bonds. The low correlations between art markets and most of the financial markets are indicative of the potential gains for portfolio diversification concerning art investment. Correlations of contemporary and modern art has increased than old art. As the number of assets rises, the risk of the portfolio minimizes to the individual covariance. The research also shows that the returns on paintings are much lower and the risks involved are much higher than other assets in investment markets. Special Acquisition Strategies The painting sector has adopted a variety of strategies that reveal buoyancy for expansion of innovative technologies. The strategy is to concentrate on the purchase of paintings of eminent artists to market through minority risk. The Art Market is focused on Old Master Paintings and Drawings. They buy and hold strategy for artists whose works were created between the time period of 1600-1850 with a specific highlight on the established celebrity. The new investment proposal invests in technologies and companies that focus in the endorsement and renovation of these works. There is a need to bring a knowledgeable and experienced team to handle and finance these special opportunities. In addition to being able to act immediately, they concentrate on designing deals that influences the external forces that investors experience in these circumstances. It is always advisable to buy quality art with original framing. It is suitable to buy directly from the artist’s studio, but if investors are going to buy older art they have to look out for any possible damage. Paintings can be renovated but value will be improved and better maintained by paintings in a perfect condition. A good painting might cost more but the re-sale value and appeal is considerably enhanced. If the painting has an interesting history or is of importance in the artist’s job than its value gets proliferated. Value Enhancement Strategies Acquiring and selling paintings are gaining demand and they outperform supply mainly at the high end of the market. The investors are on the set of buying those paintings, which can increase the sale of art. Increases in value have been apparent for works of art from living and departed artists. The additional aspect of seeing art values raise, even as enjoying works of art at home have shown increasing trends for some art collectors. In such cases, it is easy to understand that investors attain an added element of enjoyment towards the art works they have acquired. Establishing the value and potential value of art is very difficult. But the causes that can influence prices for artist’s work are simple to identify. They include: the popularity and reputation of an artist, the quality of the artwork, the subject, previous buyers and so on. It might be suitable to buy those paintings, which increase in value. The best paintings by artists are probable to appreciate more value than poorer works done by the same artist. Therefore, it is essential to buy the best art the investors can afford by established artists to increase better return in the future. The investors should take care of the art investment in order to obtain more than the average in the future. Professional & Expert Biographies Derek McCrea Derek McCrea is a visual artist who has retired from US Army. He loves to paint as it permits him to convey feelings on paper and relax. Derek paints in a fanciful impressionistic manner in plain air backgrounds. He was born in Georgia on 19th February 1969. He first began painting with oils in the summer of 1982. In 1986, he won top position in Georgia Arts Exhibition. Derek joined the US Army in 1987 and continued painting on scenery subjects in Holland, Italy, Germany, France, and Hungary, painting in the plain air style. His works of art are found in galleries all through the Southeastern United States and in confidential collections internationally. He has constantly contributed numerous works each year to charities and loves to hand back to the community for a good reason. His works are issued over 50 international publications and he has been acknowledged with several awards and honors for his effort. Brian LaSaga Brian LaSaga was born on 1st November 1955 in Newfoundland. As an artist, Brians journey began at a very young age. He has constantly been a visual person and as he received no formal training, his art is more instinctual. Even though he has experimented with gouache, watercolors, oils and egg tempera, the artist shortly recognized that acrylics are a better match to his technique and style. His work is deeply influenced by nature. Brians subjects frequently comprised weathered textures, rural settings, seascapes, landscapes and occasionally consisted of integrated figures or some variety of wildlife as an annex of nature. The artist desires to paint memorable experiences and subjects indigenous works relating to his region He used to go for hiking, kayaking and even went on various field trips to collect material for his paintings. “Many of his works hang in corporate, public and private collections in Canada, United States and Europe” (Lasaga para.2). Antoine Gaber The impressionist painter, Antoine Gaber has received his place along with other most valued painters in just a decade. Gaber emerges as an innovative artist in fruitfully recreating the impressionism of mastering the infinite source of stimulation at the back of his painterly work. Art critics see Gaber as resuming the impressionists with a new eye and his own responsiveness, creating the art of impressionists as the art of now. Gaber is the first artist internationally to present numerous years of data representing the authentic market performance of his artwork as compared to Standard and Poors Market Index. Mark Hobson Mark Hobson lives in Tofino, Canada where he has professionally painted for above twenty-five years. Creating portrayals of about every day in his formative years, he steadily trained himself with skills in oils, water-color, and acrylics. Mark is renowned for his zealous portrayals of landscapes and wildlife of the Canadian Pacific coast. Marks work has received several awards. As a strong advocate for conserving the wilderness, he has contributed several paintings and much of his time to endeavor to safeguard natural environments. Federico Castelluccio Federico Castelluccio is a worldwide renowned pragmatist painter, expert of old master baroque painting and an art collector as well. From an early age, Federico had shown the talent and an inborn ability for painting and was determined to follow a life in art. He has received numerous awards for his paintings. Many renowned actors and celebrities own Federico’s original work, including Caroline Rhea Whoopi Goldberg, and Joe Pantoliano. “Federico is a passionate collector and connoisseur of old master paintings, early European sculpture and Roman, Greek and Egyptian Antiquities” (Castelluccio para.7). Research Methodology A research is a systematic procedure to attain results. It involves the process of collecting data, analysis of data and finally drawing out conclusion for that data. This study is conducted to identify the credibility of the investment proposal and to set up an art fund to grab the opportunity of increasing interest in real asset. A market research is conducted to collect the data from the proposed clients, especially celebrities who are interested in traditional and contemporary artwork. A portfolio has been constructed in order to analyze the risk, return involved and correlation between art market and financial assets such as company stock, bond, equity etc. The artwork and biography of Derek McCrea, Brian LaSaga, Antoine Gaber, Mark Hobson and Federico Castelluccio are included in this research study. A comparative study of different similar sectors is also conducted to analyze the acceptance of the painting sector by the proposed clients and to evaluate the strategies to be adopted to acquire and enhance the value of the painting work. Works Cited Art Market Trends 2011. Art Price.com. 1987. Web. 13 June 2012. Castelluccio. Federico. Artist Biography. Federico Castelluccio-Paintings.com. 2010. Web. 13 June 2012. < http://www.federicocastelluccio-paintings.com/biography.htm> Lasaga, Brian. The Artist. Brian LaSaga.2008. Web. 13 June 2012. Mcandrew, Clare. The World’s Leading Art and Antiques Fair. 2011. Web. 13 June 2012. Performance and Correlation of art an Alternative Asset Class During the Current Financial Crisis. Deloitte. 2012. Web. 13 June 2012. Port Folio Construction and Risk Management for Fund Managers. Algorithmics.2008. Web. 13 June 2012. < http://www.algorithmics.com/EN/media/pdfs/Algo-BR0007-PortConRiskMan.pdf> Read More