Art attack: International art fund managers shy away from Indian market

The Fine Art Fund Group, which invests in art on a global scale, says that the Indian art market still needs to stabilise from the speculative prices witnessed during 2007-08

The global economy is returning to normalcy and is showing signs of recovery. Investors are now showing interest in the global art market. However, according to international art fund managers, the Indian art market still needs to stabilise from the speculative prices witnessed during 2007-08.

Philip Hoffman, CEO and founder of the Fine Art Fund Group, believes that the Indian art market has gone through a lot of speculation and needs to stabilise further. “We believe that this market saw a great deal of speculative purchasing in 2007-2008 and we would like to see the market stabilise before we enter for investment purposes. Nevertheless, we do believe that there are excellent works of modern and contemporary Indian artists that will come up for sale, both privately and at auctions and we will be closely following this market.”

The UK-based Fine Art Fund Group is one among the few asset managers who are active in the art market arena, offering access to a wide range of sectors in the global art market.

After launching funds for the Chinese and the Middle East art markets, the group had planned an Indian fund launch.

During 2007-2008, when the Indian art market was enjoying a golden period, there were speculations that the Fine Art Fund Group was planning an Indian fund. However, since then, the company has held back its plans to enter the Indian art market.

What held back this group from entering the Indian market? “In light of the changes in the market in general and in the Indian art market specifically, we decided to postpone the launch of the Indian Fine Art Fund for the present until we receive further significant interest from investors,” said Mr Hoffman.

While the group is still wary about launching an India-based fund, it has performed well in its existing global funds. The group’s first fund named ‘Fine Art Fund I’ reached the end of the designated investment period and the first cash distribution to investors was made in the final quarter of 2009. The Fine Art Fund was the first fund of its type to invest in art as a worldwide asset class and continues to be the only one to do so on this scale.

The company claims an average annualised return on assets sold at 34% and cash-on-cash returns at 55.88% on this first fund. The group has also stated that the fund is well-guarded against the current instability in the art market as it will no longer be purchasing artworks, but will be divesting all holdings over the next four to nine years. “Given the luxury of this extended time-frame, we are in a very strong position to wait until all areas of the market have stabilised, in order to maximise our intended returns,” says one of the company’s releases.

The second fund named the ‘Fine Art Fund II’ was launched in July 2006.The minimum investment was $250,000 in this 10-year close-ended fund, with a target return of over 10%, with capital returns after the fourth year. According to company officials, this fund had its final close in December 2008 and currently has an average annualised return on assets sold of 29%. The key factors of both these funds have been a diverse portfolio across five segments and a long period.

The fund’s portfolio construction has been in a diverse pattern with 30% to 35% in old masters; 10% to 20% in impressionists; 15% to 20% in modern art; 30% to 40% in contemporary art (1960- 1985) and 5% to 10% in contemporary art (1985- 2010).


Food inflation rises to 16.44% on higher prices of fruits, vegetables

The fuel price index rose 12.33% from the previous week's annual rise of 12.69%

Food inflation rose to 16.44% for the week ended May 1, mainly due to high prices of fruits and vegetables, reports PTI.

Inflation rose by 0.40% from 16.04% in the previous week.On a weekly basis, potato turned expensive by 5.95%, tea by 5%, fruits and vegetables by 2% while urad, arhar, masur, condiments and spices by 1% each.

On an annual basis, pulses turned costlier by 32.49% and fruits by 15.51%.

Food inflation had crossed 20% in December last year.Among non-food articles, sugarcane prices rose by 50% during the reporting week, while raw cotton prices rose by 2%.

The food price index rose 16.44% in the year to May 1, while the fuel price index rose 12.33%, according to government data released on Thursday.

The latest fuel prices compared with the previous week's annual rise of 12.69%.

The primary articles index was up 16.76% in the 12 months to May 1, compared with the previous week's annual reading of 13.93%.


SEBI challenges SAT order on takeover code

The tribunal had in January this year set aside a SEBI direction that held that the veto rights acquired by a financial investor in a target company cannot be construed as a controlling stake

Market regulator Securities and Exchange Board of India (SEBI) on Wednesday moved the Supreme Court challenging the decision of the Securities Appellate Tribunal (SAT) that held that financial investors like private equities (PEs) and venture capital firms (VCs) do not acquire controlling stake in a company by just picking up more equity, reports PTI.

The SAT had in January this year set aside a SEBI direction that held that the veto rights acquired by a financial investor in a target company can be construed as a controlling stake.

An apex court bench comprising the new Chief Justice SH Kapadia and Justices KS Radhakrishnan and Swatanter Kumar directed both the parties to file their written submissions.

The case assumes significant as it will provide clarity on the nature of investments made by financial investors such as private equity funds and venture capital investors which typically seek protective interest in their target companies.

The apex court decision will also have implications for the SEBI Takeover Code.

Financial investors are uneasy about seeking veto rights in listed companies for fear of triggering the requirement to make an open offer under the Takeover Code.The SAT ruling came over a petition filed by one private equity investor Subhkam Ventures, which challenged the SEBI direction to go in for an open offer on the grounds that it violated the provision of the takeover norms by getting the veto right in the target firm MSK Project.

Subhkam had acquired over 15% in MSK Projects, triggering the requirement of making an open offer (an open offer requires the acquirer buying at least 20% more of the public shareholding) under Regulation 10 of the Takeover Code.

However, Subkham contended that it was merely a financial investor and acquisition of more stake would not result in a change in the control of the company under Regulation 12 of the Takeover Code.

But SEBI rejected the contention of Subhkam and ordered it to revise its offer document in accordance with Regulations 10 and 12 of the Takeover Code.

Following this, Subhkam moved the SAT, which set aside the SEBI direction saying the veto right did not amount to control of the company. The SAT also reversed the SEBI contention that the power of the acquirer to nominate its directors on the board results in management control and said that one nominee out of 10 directors could not confer control and that the role of the nominee is merely to keep the acquirer apprised of the developments in the company.


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