Osian Art Fund failure: Mr Tuli’s version
Moneylife Digital Team 07 December 2011

Neville Tuli, chief advisor of the fund, explained that many buyers, who had promised to buy art at preset prices in 2007-08 refused to pay those prices in 2009 when redemption demanded it. Besides, banks also refused to led to the fund, leading to the failure in redemption

After much delay in the final payout and lack of clarity over the final redemption, Osian Art Fund has once again ambiguously stated that the payments will be soon completed. Neville Tuli, chief advisor of the fund, who according to the unit-holders was evading questions, has for the first time explained the reason for failure of his fund and timely redemption.

Recently, Osian’s announced that it plans to hold an auction on 15th December in Delhi, a decision which has irked many investors. Neville Tuli has invited all for an auction preview for ‘Creative India Series I- Bengal’, which features paintings from the colonial era. The auction will be held at The Imperial, Janpath, New Delhi.

Mr Tuli, through an essay named ‘A Note on the Osian’s Art Fund’ in the Auction Catalogue, has explained in length about the fund’s failure. The Art Fund, a three-year closed-ended fund launched in 2006, ran into trouble after it declared Net Assets Value (NAV) but when investors tried to redeem the money, it was not possible.

 According to the Mr Tuli, many buyers, “who had promised to buy art at preset prices in 2007-08 (upon which the ongoing NAV was based) refused to pay those prices in 2009 when redemption demanded it, as by then the prices had fallen by more than 50%-60% of the agreed value, but more importantly confidence was at an all-time low and liquidity at an exceptional premium.”

He explained that the assumption that art would be sold at a discount of 20%-30%, compared to earlier sales, proved wrong. “…as the art would not sell at any price, given a relatively large amount of absolute value was required to be sold. The cash liquidity just did not exist even at a junk value discount.”

The fund, instead of writing down the NAV to 54.65, decided that Osian’s – Connoisseurs of Art, who is the asset manager, could cover defaults to protect the unit- holders’ capital.  The NAV of 54.65, according to the fund, “could have been the value if the defaults had been accepted and sales made at whatever prices.”

Accordingly, various banks were approached to lend to the fund, so that the unit-holders would be paid in three to four years. Few banks, agreed to lend and on that promise, in December 2009, the NAV was kept at 111.72. 85% of the capital was to be paid to all unit-holders. However, three months later the banks refused to lend.

Till date many of the investors have not been repaid and have demanded that the forthcoming auction, where investors are allowed to participate on their choice, be blocked unless they are paid in full.

Meanwhile Osianama—a grand museum of art, culture, cinema and architecture, and Mr Tuli’s dream project—will be completed in 2012. Mr Tuli had bought the plot where Mumbai famous Minerva Theatre used to stand for Osianama, but the deal got delayed when Osian’s ran into trouble with the civic authorities.

Osianama will be completed next year. However, Mumbai Mirror, a tabloid reported that the project has been shelved and is moving to Delhi due to the legal battle over the land, which Mr Tuli purchased from the original owner, film producer FC Mehra in 2006.

Mr Tuli says that, “we have been totally committed to closing the Fund, and whatever the costs, this will happen very soon.”

Comments
Ubaldo C DSouza
8 years ago
I remember Moneylife featuring, in one of their books that came gratis with a subscription, a detailed analysis of the shenanigans of Harshad Mehta "and associates". Earlier there was the sensation in the shipping industry crafted by a guy who I think, subject to correction and apology if wrong, was one Dharma Teja. Then there was the Richardson & Cruddas mess exposed by Feroze Gandhi. Moneylife should create a series of all these infamous sensations and I venture to suggest further that this should be compulsory study/reading for the emerging generation. Basu and Dalal have all that it takes to undertake this and do the favour of saving some more gullibles and greedies from misery and red-facedness.
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