Hedge Fund Launched To Trade in Art

Filed in archive Hedgetalk on May 31, 2007

Over the past 10 years, returns in the art market have outpaced gains made by the S&P 500, according to the Mei Moses art index.

The statistics in this index, created by two professors at New York University's Leonard N. Stern School of Business, reflect the prices of about 8,000 pieces of art which have been bought and then re-sold in auction houses reaching as far back as 1875.

The Art Trading Fund, which is based in the U.K., is halfway through a £25-million ($53-million) fundraising drive. Roy Petley, an artist who counts the late Queen Mother among those who have bought his work, is on the five person team working on this new hedge fund, they have signed up 10 "world-renowned" artists to create masterpieces them.

Paintings, drawings, watercolours and sculptures will all make their way in and out of the fund's collection. Impressionist, post-impressionists, modernist and contemporary creations are all within the Art Trading Fund's mandate.

The hedging strategy -- something Mr. Carlson is careful not to reveal in too much detail-- uses puts and other strategies to offset the risk of the art market. The fund back-tested its strategy by 30 years, and Mr. Carlson said its plan has a 96% correlation to the art market.
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