SKATE'S MARKET NOTES
September 6, 2010
Russia Takes the Lead in Regulating Art Securitization and Collective Investments for Art & Collectables
While Moscow was buried in smog this summer, its regulators, specifically Federal Commission on Securities Markets and Ministry of Justice worked in concert with some of the most influential domestic financial institutions to launch a new regulation that allows for art securitization and creation of art funds to be offered to domestic and international investors, including Russian general public.
This initiative has been implemented within the ambitious modernization program launched by Russian political leadership that among other objectives includes creation of the international financial center in the city of Moscow. While the prospect of Moscow to rival London, New York or Hong Kong seems to be laughable as far as mainstream investment assets are concerned (the country's large scale corruption cases such as recent incident with Bill Browder among others, continuing isolation from WTO and arcane visa regime make it unlikely new global financial hub), an idea to give it a try with alternative assets might actually be not a bad strategy.
The world lacks regulation of art securitization and art funds. With an exception of perhaps only India no country of any significant domestic investment market has a well defined regulatory framework for art funds. We are not aware of any regulatory framework anywhere in the world defining how art assets can be put into mutual funds and such funds can be offered to general public or / and qualified investors. Well, as of this summer Russia not only has this framework but it already has the first pilot art securitization project on the way.
Leader, a powerful local asset management firm controlled by Putin loyalists, launched two closed end art funds on August 27 and is expected to complete subscriptions by the end of November. Skate's has learned that once initial subscription period is over, Leader's larger art fund (called "Sobranie" that can be translated both as "collection" and "meeting") can raise anywhere between RUR 2 and 6 billion (US$ 63 and $189 million) in assets, and significant portion of those are expected to be large collections contributed to the fund in exchange for the fund units.
This is a massive experiment considering that we estimate the entire global art funds industry to be within US$ 300 million in net asset value of funds available to outside investors. And with exception of a few tiny funds in India all those vehicles are unregulated structures available to qualified individuals only that cannot be marketed in any of the major investment markets. Skate's has learned that at least two more well established Russian asset management groups are scheduled to launch their art funds by the end of the year.
For detailed information on how Russian art securitization legal framework works and how you can sell your art through Russian art funds or invest in these funds, please contact Skate's Art Securitization Practice in New York at +1.212.514.6010 or email at firstname.lastname@example.org.