In 2006, Osian Art Fund closed with a total corpus of more than Rs102.40 crore, but at the time of redemption it disappointed investors with poor returns. Neville Tuli, chief advisor, Osian Art Fund and chairman, Osian’s-Connoisseurs of Art Pvt Ltd, talks to Amritha Pillay from Moneylife on art funds and art markets in India
Amritha Pillay (ML): The Osian Art Fund failed to produce impressive results. Was the three year lock-in too short a time for the Fund?
Neville Tuli (NT): It is not only about the three year lock-in being too short, but the fact that market conditions were extraordinary and the scale of the meltdown (in prices, volumes, liquidity and confidence terms) was a reflection of the nascent financial infrastructure for art and culture. Many more institutional players need to enter this sphere of work for the framework to reach global standards of awareness and information flow. Further, the performance of the Fund was very good given the state of the art market, but relative to expectations in 2006 and the opportunity cost in other investments, it was a genuine disappointment.
ML: What are the main issues involved while trying to sell a work of art, in a depressed market? In such a market, how much can the value of the work of a mid-level artist go down from the peak?
NT: Historical significance of the artwork and the artist is first and foremost the most critical parameter in understanding valuation, if not everything. Remember always that the high quality art object has been the world’s most expensive object for over 5,000 years across all periods of civilization and history—this is no short-term pedestal which gets broken with ‘technicals’. The desperation to sell is the real problem, thus holding power is critical.
Further, an artist does not become ‘historically significant’ overnight, a minimum of twenty-thirty years of critical due diligence goes into becoming a notable artist, which allows the bad periods to be absorbed with credibility and the next fertile phase to be anticipated. Changes in taste then only impact within a band; the floor is always established with immense credibility. Most people look at the highs in understanding a market, the key is only to see the changes in the floor levels which become irreversible over time. This is pivotal to understanding art as an asset idea.
ML: Should one consider the best way to invest in art is buying artworks cheap, holding them for a longer period and then selling them?
NT: It is far from that simple. Most artworks bought by the public without appropriate knowledge, which do not hold relative historic significance, will be ‘worthless’ when they try to sell them. Everything old is not of value.
‘Art’ itself is too vague a definition when speaking about ‘art as an asset’. For every 1,000 artworks one may qualify for an investment/asset potential in the sense that it can be traded in a systematic manner at relatively fixed intervals at a price which one reasonably expects.
ML: Financial investments usually have earnings attached to them which can be used to arrive at the intrinsic value. However, the only factor determining the earning of a work of art is what others are willing to pay for it. This value in turn is purely based on what the market mood is. How can an art fund overcome this handicap?
NT: This is not true, though in a major meltdown much behaviour comes closer to such assumptions. As the art market becomes more efficient with a greater flow of authentic information and awareness, a greater number of institutional players, options for discounting, collateralisation and underwriting facilities, with clear regulatory guidelines, the chances of well managed art funds succeeding will very much improve. Imagine the stock markets ten years ago, without so many systems and frameworks in place, the art ‘industry’ is very much at that early stage of development. In the medium to long run, the well-managed regulated art fund will be the ideal vehicle for India to monetise and bring to the white economy the vast cultural artefacts, most of which still exist in the cash underground economy. A few hiccups and failures should not discourage anyone; one must see the stage of growth and accordingly understand that India can still become a world leader for institution building for the arts and culture, if only the system supports rather than fights the processes of greater transparency.
ML: One of the reasons why the Osian Art Fund, one of its kind in alternative investments, produced lacklustre results is the lack of liquidity of its assets. Can funds based on an illiquid underlying product ever succeed?
NT: Once an institutional framework emerges which tackles some of the issues raised above, such as bill discounting, collateralisation of the asset, underwriting with deeper insurance covers, option contracts which are legally effective, greater daily flow of authentic information, a stock exchange kind of a platform, appropriate regulatory frameworks which understand the unique nature of art and culture as an asset and the like, then you will see how our cultural artefacts emerge from the dark into a credible asset for India and our people.
ML: Do you still believe an art market in true trading terms exists, since buyers disappear so easily in a downturn?
NT: Of course, these are very early days, the nascent pioneering stage of the process. Three years from now, it will be radically different, as the knowledge of our people and system increases and more opportunities, good and bad, are taken to task and are made to prove their worth. India cannot develop unless she finds credible platforms upon which her heritage is clearly monetised and made transparent for all to value and respect.
ML: What modifications are you planning for the next proposed art fund?
NT: At present, let me complete all my obligations and the rebuilding process will naturally follow. To build new platforms of pride and credibility takes time, we must never lose hope but next time the planning and preparation will deeply understand both the down and up sides of the project with greater equanimity.