Art Funds: Key Considerations for a Successful Design

Art as an asset class presents an attractive opportunity for long-term investors. However, unlike other alternative investments—such as commodities, real estate, private debt, or infrastructure—that are accessible through specialized funds, the experience with art funds has been disappointing. This article identifies the reasons that art funds have not been successful, and proposes a novel fund structure tailored to the specific characteristics of the art market, drawing on certain concepts from the venture capital and private equity space. We demonstrate the feasibility of the proposed structure with two case studies using actual auction data. These examples span two of the most challenging periods recently experienced by the financial markets: the subprime mortgage crisis and the Covid-19 pandemic. Our findings confirm that, when appropriately structured, art funds can generate attractive returns, i.e., internal rates of return in the range of 13%, even under stressful market conditions. These returns can be achieved by careful artwork selection and market appreciation alone, without relying on leverage or trading gains to enhance performance.