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Last Updated: Saturday, 19 January 2008, 00:18 GMT
Bankers help artists retire wealthy
By Jorn Madslien
Business reporter, BBC News

Bijan Khezri, chief executive, Artist Pension Trust
Mr Khezri says the art market is approaching the money market

Paris-based sculptor Brian has an impressive art collection.

He collected much of it while a student at the Royal College of Art in London; swapping his own sculptures with works of art produced by his fellow students.

Paintings made by his friends not only bring back fond memories from his student days. Given that many of his contemporaries have enjoyed a great deal of success after leaving college, the art also provides him with a comfortable safety net for his retirement.

Art as investment

Such informal trading systems, where young artists swap their own work for art made by others, has always served this dual purpose of combining pleasure with diversified financial security.

Bijan Khezri, chief executive, Artist Pension Trust
I think we've put a lot of artists on the map
Bijan Khezri, chief executive, Artist Pension Trust

The idea is that at least one of the group will become a recognised and valued artist, and as such a broad arts portfolio is likely to contain at least one valuable work of art.

Now, a multilingual globetrotting financier has formalised the system, making a quantum leap in the process, in the form of the Artist Pension Trust.

"The art market is approaching the money market," says Bijan Khezri, the Trust's chief executive.

The idea is simple; the investment vehicle appoints arts specialists - including curators and art critics - around the world to cherry-pick 50 "young, emerging to mid-career artists" who are invited to join a trust, which Mr Khezri describes as, essentially, a "closed end fund".

Over a period of five years, the trust attracts 250 artists who each "invest" by depositing a series of some 20 works of art over a period of 20 years.

Typically, an "investment" would be one painting or one sculpture, though given that each "investment" should be worth some $7,000 to $10,000 (3,500-5,000) some artists would need to submit more than one piece of art per year, whilst others might be allowed to submit fewer than 20 pieces.

Supplying value

Roughly speaking, at the end of the 20-year period, each "fund" will have an arts portfolio consisting of 250 artists' collections, each containing 20 works of art collected over a period of years.

Frieze Art Fair, London
Laughing all the way to the bank: artists get to secure their retirement

The hope is that the artists will prosper, so that their works of art increase in value - though the trust leaves little to chance.

Each collection represents a historical documentation of an artist's work, thus giving a broad picture of his or her progress. This in itself makes it more interesting to many collectors, or indeed to arts investors, and as such the art portfolio value is enhanced.

"The total becomes more than the sum of the parts," says Mr Khezri.

Moreover, having been set up by entrepreneurs, the Artist Pension Trust is also in the business of creating value, essentially by nurturing its members' fame, or, in the words of Mr Khezri, "fostering the career of your investment".

The Artist Pension Trust actively promotes their work by arranging exhibits or otherwise raising awareness of their work - for example by lending art to museums or back to the artists for their own exhibits.

"Artists are part of the organisation because they see it as a platform where they can be seen, where they are promoted across the world," says Mr Khezri. "I think we've put a lot of artists on the map."

Frieze Art Fair, London
Better transparency should attract investors

But much of the financial security offered by the structure is based on its diversified nature.

Currently, there are eight trusts within the overall umbrella structure, each run by a team of experts. Add up the works of art gathered by each trust and a portfolio of 40,000 works of art by 2,000 artists will eventually emerge.

"It is definitely the fastest art collection in the world," says Mr Khezri.

Given that all the artists have been invited to join by experts who have examined their work, the breadth of the arts portfolio should make it fairly likely that the next generation's Damien Hurst or Jackson Pollock will be amongst the trust's members, reasons Mr Khezri.

"It really comes down to mathematical probabilities," he says.

Financial innovation

On top of all this, Mr Khezri has injected some financial acrobatics into the equation, essentially by analysing the art market through the sober glasses of a besuited Wall Street banker, which indeed is what he used to be (he worked as an investment banker specialising in the uranium market, which is vital for the nuclear industry).

"The arts market lacks transparency and liquidity," he explains; in short, there is no arts exchange, along the lines of a stock exchange, where market values are determined with some clear visibility and predictability.

"If you create transparency you'll create liquidity," Mr Khezri continues, insisting that "asset securitisation will be the future".

Art is becoming a part of their lifestyle
Bijan Khezri, chief executive, Artist Pension Trust

Mr Khezri points out that billions of dollars are invested in art and that a string of investment banks - Citibank, Deutsche Bank and UBS to name but a few - are developing a structured approach to art.

Such "financial innovation applied to the art market" involves "the forward selling of revenue streams that are not yet in existence".

What all this means in practice is that investors in art make predictions about future value. They will invest if they think the work of art in question will rise in value, thus eventually create a yield.

The logic behind "indirectly monetising art" is that large and carefully managed pools of art works are more likely to produce a predictable and steady revenue stream that can be sold to investors.

"There will be a lot of artists who will not submit 20 works. There will be a lot of artists who will stop working. There will be many artists whose work will be worthless," says Mr Khezri. "That's all factored in, so it's very similar to the venture capital model."

Realising value

Obviously, in order to return some of the value to its investors - which include both the artists themselves and a bunch of behind-the-scene financiers who have injected cash - some of the works of art will need to be sold.

Frieze Art Fair, London
Spotting the artworks that will rise in value is tricky

The Artist Pension Trust decides which bits of art should be sold when, and it decides the price it should be sold for. However, it does so in consultation with the artists, who remain owners of their own works, to ensure they do not disrupt their work or the market for their art.

Whenever a work of art is sold, the money is split between the investors. The artist whose painting or sculpture has been sold will get 40% of the sales sum - roughly equivalent to the proportion paid by good galleries.

A further 32% will go into the pool that provides a return to all the artists, in accordance with a complex formula that aims to reflect the value of their input into the trust.

The remaining 28% is charged as a management fee to cover storage costs, transport costs, exhibition costs and so forth - as well as providing a return to some 40-50 individual investors - mostly financiers who own private art collections.

To them the project may well prove lucrative, though chances are they are not only in it for the money.

"Business and the private sector is much better at making a difference," grins Mr Khezri. "Art is becoming a part of their lifestyle."

SEE ALSO
Art studio turns paint into profit
06 Aug 07 |  Business
The art of losing money gracefully
17 May 04 |  Business

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