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 Business Times - 30 Apr 2008 

An 'art attack' on wealthy Asians 

Art funds pool investors' money to put into works expected to appreciate significantly over time. GENEVIEVE CUA learns that emerging markets may just be ready for this new tack  

ASIA'S wealthy now have a new investment option to consider - one that boasts beauty and anappreciation potential that could well exceed the broad equity market.

Art investment funds are a rarity in Asia, but Meridien Art Partners managing partner AndrewLittlejohn is in Singapore to interest clients in the firm's new Emerging Art Markets Fund.

Later this year, the more established group behind UK-based The Fine Art Fund may also head toSingapore and Hong Kong to market a number of funds investing in the art markets of China, Indiaand the Middle East.

Art funds pool investors' money to invest in works which are expected to appreciate significantly overtime. The funds offer diversification - your US$1 million could be invested in 50 art pieces, forinstance, instead of just one. Another benefit will be the value-add that the managers are expected tobring, which includes a committee of experts to select art pieces, and exhibition and art galleryshowings of the works to enhance their perceived value particularly among collectors in thedeveloped markets.

The holding period is typically about 5-7 years, with little liquidity in between.

Meridien's Emerging Art Markets Fund aims to invest in contemporary art, scouring the markets ofSouth- east Asia, Vietnam, Russia and the Middle East, among others. Mr Littlejohn says: 'Theemerging markets are where we think the opportunities lie in the long term.' He hopes to raise US$25

million by the first closing of the fund in June. The target asset size is about US$100 million.

A small number of art funds attempted to get off the ground some years ago but almost the only oneto report success is The Fine Art Fund. Philip Hoffman, chief executive of Fine Art ManagementServices, said the firm's flagship funds which invest in Old Masters, Impressionist, Modern andWestern contemporary art, have achieve an annualised return of a stunning 50 per cent since theywere set up in 2004. About US$100 million is invested in the funds.

The firm has since set up four other funds to invest in Chinese, Indian, Middle Eastern, andPortuguese and Spanish art. For these, he anticipates raising another US$100 million.

While there are no Asian investors in the firm's first funds investing in Impressionist masters, that may

soon change with the new funds. The firm has been approached by some private banks to renewmarketing efforts in Singapore and Hong Kong.

Mr Hoffman said the group seeks 'quality' pieces of art. 'We just bought important ceramic vases fromthe 18th century from the Imperial Dynasty in China. The contemporary art we buy is typically in therange of US$100,000 up to US$1-2 million per piece.

'For Indian art, we may pay US$10,000 to US$20,000 or between US$300,000 and US$500,000 perwork.

'My view is there are opportunities, depending on the sector. In antiques, the typical upside is perhaps50 to 100 per cent over 2-3 years. In contemporary art, it's 3-10 times for certain artists. Plenty havegone from US$20,000 to US$500,000 in the last five years. Picking the right piece is key.'

In terms of marketing to Asian clients, it helps too that the pool of wealth is growing rapidly. In the lastyear or two, buyers from Asia and the Middle East are beginning to make waves in art auctions.

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Mr Littlejohn says: 'As emerging economies grow, the idea is that culture follows money. Once thewealthy have exhausted their interest in jets, second homes and other luxury items, they turn to art.With that, they create a regional market to promote art into the broader international scene. We seethese works getting back into the Western market, in galleries in London, New York and Paris, andthat's really where the value is created.

'Some might say that the volatility in markets has caused some to pull back. But it's quite theopposite. The savvy investors are interested in diversifying their portfolios and looking to get out ofequities and moving into alternatives. We're definitely seeing more interest from Asia and the MiddleEast.'

Meridien's partner in Singapore is Calamander Capital, founded by former Boston Consulting Groupdirector Roman Scott. Mr Scott says there is interest among the ultra high net worth clients, althoughthe market is very niche.

'Investment in real assets like art is inflation-proof, and they offer much higher appreciation againstthe trade-off of illiquidity. More sophisticated investors are prepared to make that trade-off for seriousalpha.'

He adds: 'We find rich Asian individuals are not as art-oriented as Westerners, but they are

developing.'

Meridien's annual return target, says Mr Littlejohn, is a 'modest' 30 per cent. The fund has a five-yearlife, with an option to extend for two more years. It may make distributions after the third year. Itcharges an annual management fee of 2 per cent, and a performance fee of 20 per cent at the end ofthe fund's life, for any excess return above a hurdle rate of 6 per cent.

The Fine Art Fund's fee structure is broadly similar, but there is no hurdle rate for the performancefee.

Copyright © 2007 Singapore Press Holdings Ltd. All rights reserved.

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