The Hindu Business Line : Now, a fund for the sake of art

THIS is not quite art for art's sake. Investment in stocks and bonds may soon have to allow space for art. The first home-grown auction house for contemporary paintings — Osian's Connoisseurs of Art Pvt Ltd - says it is readying the launch of the first art fund before the year is out.

"We are definitely going for an contemporary art fund in the next six months. The fund will be Rs 60 crore in size to begin with and can go up to Rs 450-500 crore over the next 30 months. The funds will be raised from our private clients and there is no question of trading in stocks. Also, the returns from art are much more," says Neville Tuli, Chairman of Osian's.

The fund will be used only to trade in works of art and could start with a base of 40 artists or even a particular period in Indian art. It could be open-ended or close-ended depending on investor preference.

Initially, it will have a trust-like structure. The groundwork has started with Ernst & Young doing due diligence, while legal documentation is being done by Amarchand Mangaldas. Among the steps being taken to demystify art and make it investor friendly, include the breaking down of paintings to square-inch-rates, something the puritans still find difficult to accept.

When he first came up with the concept in 2003, Tuli had a hard time convincing financial institutions that art could be treated as a financial asset. Since then, the art market in the country has matured with more transparency in terms of valuation and the pitfalls in trading becoming more apparent, he says.

According to Tuli, it is not that FIs are insensitive to the increasing levels of interest by the public in art as a form of investment. Among those who have evinced interest in this segment, include Kotak, ING Vysa, Citibank and ICICI Bank. "They have different degrees of interests and are at different stages of commitment. But, only if public sector banks start evincing interest will the middle class consider this a viable instrument," Tuli says.

Historically, art has always been a big-ticket investment and global financiers are now waking up to its potential in a structured format. In India, the organised art market is valued at Rs 650 crore a year, with 90 per cent still centred in Mumbai and Delhi. For the last couple of years, it has been growing at 35 per cent.

"The Indian art business has to be growing at around 85 per cent annually if the investor is to get a 35 per cent return.

"This is so as one has to factor in a similar return for the trader and a 15 per cent provision for sales tax. Some 150 of our 700 clients would fall in the high networth category with transactions of Rs 5 crore a year," he explains.

There are half-a-dozen or so international art funds that are now getting launched by former Sotheby's and Christie's directors along with bankers and fund managers from Wall Street.

While they are satisfied with a 10-15 per cent return, Indian art is said to have the potential to pay 30-35 per cent for the next 10 years.

Popular perception is that it is the corporate who is a serious buyer of art today. Far from true, says Tuli.

Among some of the serious investors are professionals - investment bankers, doctors, lawyers and management consultants, most of them impatient with the rate of returns from stock markets.

And more are boarding this bandwagon.

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Now, a fund for the sake of art