First fine art hedge fund domiciled in Guernsey

Date: Monday, October 15, 2007
Author: Hedgeweek.com

The world's first-ever genuine fine art hedge fund has been domiciled in Guernsey and listed on the Channel Islands Stock Exchange. London-based Artistic Investment Advisers' Art Trading Fund is a three-year closed-ended Guernsey vehicle established as a cell of Art Investment PCC and is expected to close at the end this year having raised GBP25m.

'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,' says 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 this positive approach and spirit of co-operation has provided the foundations for the success of this fund.'

The Art Trading Fund operates like a mutual fund, except that it buys and sells is art rather than securities, and it is designed for both institutional and retail investors that want to diversify their investment portfolios rather than necessarily collectors or aesthetes.

According to Artistic Investment Advisers, what distinguishes it from previous art funds is the Art Trading Fund's strategy of buying put options on stocks considered 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 stocks will fall too, and the fund can turn these options into cash.

'To have the world's first ever genuine fine art hedge fund domiciled in Guernsey is a real coup for the island,' says Peter Niven, chief executive of GuernseyFinance, the promotional agency for the island's finance industry.

'It is a major endorsement of Guernsey's funds environment, and 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 Art Trading Fund buys and sells art 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 a group of living artists with whom the fund has the exclusive right to buy their art. Every six months, the fund's partners look at each artist's production and buy as many pieces as they want. What they don't want, the artist can sell elsewhere. The artists are not necessarily household names but have a track record and a following.'

'Being the first fund 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,' says Sean Cheong, a partner at Collas Day Advocates who advised on the establishment of the Art Trading Fund.

'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 in the future.'

The value of funds under management and administration in Guernsey reached a record high of GBP155.6bn at the end of June, an increase of GBP15.2bn from the previous quarter and of GBP32.2bn over the previous 12 months. The number of funds approved by the Guernsey Financial Services Commission reached 1,024 in June, a 4.4 per cent increase from the 981 at the end of March and of 179 (21.2 per cent) over the previous year.

There has been significant interest from fund promoters and sponsors in Guernsey's new registered closed-ended funds regime, launched on February 1. Up to the end of June, 37 registered closed-ended funds had been authorised by the commission.

The Art Trading Fund is part of a protected cell company structure, a company made up of a core and individual cells, where legal segregation ensures that the assets and liabilities of each cell are kept separate and protected from the assets and liabilities of the others, as well as from the PCC's non-cellular assets and creditors.

Adds Niven: 'Guernsey's funds industry is in a healthy position, and we are very much looking to continue increasing our business flows during the remainder of 2007 and through 2008.'