Osian’s art fund fails in art of investing

Osian’s art fund fails in art of investing
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First Published: Fri, Dec 11 2009. 12 30 AM IST

Graphics: Sandeep Bhatnagar / Mint
Graphics: Sandeep Bhatnagar / Mint
Updated: Sat, Dec 19 2009. 12 58 PM IST
Mumbai / New Delhi: The Rs100 crore Osian’s Art Fund, India’s first such fund floated by Neville Tuli, promoter of the country’s first art auction house, is struggling to repay investors. Five months after the scheme closed, Tuli and his colleagues are still “trying” to return money, many investors claim. While some of them are yet to receive any payment at all, others have been given around 30% less than their entitlement, according to the net asset value (NAV) declared by the fund.
Click here to read an editors post on why it is important to report stories like the Osian Art fund
NAV is the market value of the units of a fund. An art fund is like a mutual fund where investors do not pick the individual investment vehicles and instead invest in a pool of artworks.
Graphics: Sandeep Bhatnagar / Mint
Typically, only high net worth individuals invest in such funds. The minimum investment in most art funds is Rs10 lakh.
Osian’s-Connoisseurs of Art Pvt. Ltd launched the fund in 2006.
It was quickly followed by Edelweiss Capital Ltd’s Yatra Art Fund. Religare Arts Initiative, Copal Art fund, Crayon Capital Art Fund, Kotak India Art Fund and Indian Fine Art Fund are some of other funds that hit the market between 2006 and 2008. According to industry estimates, collectively, these funds raised around Rs300 crore.
Art funds started wooing investors after Indian artists started making waves at global auctions.
In December 2005, Tyeb Mehta’s Mahishasura went for $1.6 million (Rs7.5 crore today) at a Christie’s auction. In 2008, M.F. Husain’s Battle of Ganga and Jamuna: Mahabharata 12 fetched an identical amount at yet another Christie’s auction. These were widely reported and caught the fancy of investors and art emerged as a new asset class.
But the euphoria seems to be on the wane and after the credit crunch that swept the world in 2008, prices collapsed along with other assets such as stocks and commodities.
While the stock market has regained a large part of the lost ground, experts say art, being an illiquid asset, will recover with a lag effect.
Osian’s launched its first fund, Contemporary 1, on 9 July 2006—a closed-ended scheme with a lock-in period of 36 months.
As of July 2006, the total corpus held by the fund was Rs102.40 crore, with 656 unit holders spread across 39 cities in India.
Going by the fund’s prospectus, the redemption process was to start from 10 July 2009. The entire process was to be completed by 10 November.
Unhappy investors
Pankaj Butalia, a retired economics professor and part time film-maker based in New Delhi, invested Rs20 lakh along with his wife in July 2006. They are yet to get their money back.
ABN Amro Bank sold the art fund to us. We had just sold a flat then, and the bank made us invest (in the fund). Now leave alone the fantastic returns they promised, I am not even sure whether we’ll get back the money we had invested.” said Butalia.
Butalia claimed his emails to Osian’s have bounced and Tuli has stopped responding to his calls.
Deepak Daftari, a Kolkata-based investor who had invested Rs10 lakh in the fund, said “after repeated calls to Osian, I finally received Rs9 lakh a few weeks ago”.
He also claimed that the official mail from Osian’s accompanying the payment said it was 90% of the investment. “But if the NAV was Rs112.29 in July when the fund closed, then the full payment should be Rs11.23 lakh and I’ve received around 80%.
According to Daftari, there is confusion about payment dates and NAV. “We were told that the NAV for the month of July was Rs112.29, which was declared in October. Now I learn that the NAV has gone down to Rs110. I don’t understand how the NAV can go down since it was closed in July.”
He also alleged that NAV for 9 July, the day the fund closed, was not announced till the first week of November as the fund claimed the audit was going on for four months.
Tuli, chairman of the firm and chief adviser to the fund, claimed 90% of all the unit holders’ capital has been returned, and the remaining amount will be returned within a few days.
“The downturn in the art market made it very difficult to sell all the inventories and realize the dues owed as per original schedule, and so we have been as patient as possible so that the unit holders did not suffer a loss. It has been a very difficult time for all the art market, and for the fund especially as we entered at the top of the market in 2006 and are forced to exit at the bottom of the market,” he said in an email response to Mint’s queries.
An ABN Amro Bank spokesman said: “ABN Amro has stringent standards governing its sales processes and client suitability assessments that are in compliance with internal policies and local regulations. We treat all client concerns and complaints seriously and will review and investigate any case thoroughly.”
In the first week of November, Tuli had told Mint that the capital of unit holders had been preserved despite the market dropping by more than 45%. But the rate of return was to be 5% a year as opposed to 20-22% (after tax), as the fund’s disclosure report had suggested in January 2007. He had also said payments to all investors were being processed and would be made within a week.
In his email to Mint, Tuli said: “The final redemption value will be approximately Rs111.85.” This means on an investment of Rs10 lakh, an investor will get Rs11,18,500.
Had Butalia or Daftari invested their Rs10 lakh in gold, it would have fetched them Rs18.81 lakh—a return of 88%. During this time, the Bombay Stock Exchange’s benchmark index Sensex has risen 60.28%, and an investment in bank deposits would have earned a compounded return of around 26%.
An official at Osian’s, who identified herself only as Arthi, said on the phone: “There has been a delay. We have started the process last week. We are trying to do it by the end of the month.”
An official of BNP Paribas, one of the distributors of the fund, said, speaking on condition of anonymity: “There was some trouble in calculating NAV after deducting the winding up charges, etc. If the market knows that a person is holding certain kind of artwork and he needs to sell it, the prices instantly crash. So he needs to do it in a phased manner.”
Liquidity risk
Amit Sarup, head, wealth management, Religare Wealth Management Services Ltd, said: “Art is illiquid. But in a market like what we saw six-eight months back, it was difficult to sell anything, be it art, real estate or any other property. Liquidity risk is always there in an art fund. You have to start early. It is not like equity mutual fund that you can sell on day of redemption. You need to plan it over a long period.”
Religare did not have any investments in the Osian’s fund.
According to Ella Datta, an author and art critic, the market is neither large nor dynamic enough to nurture several art funds but that discerning funds will still manage to succeed.
“A good work of art will always have a market. There are two categories of people—the genuine collectors who have been buying art per se and the investors who want to buy and sell art. There aren’t too many belonging to the second category in the market now,” Datta said.
Datta is an adviser to Crayon Capital’s art fund, launched in November 2006 with a lock-in period of 36 months.
At the time of its launch, the fund had indicated a 30-40 % return to investors. On its website, the fund now claims an NAV of Rs1,101 per unit of Rs1,000 (a return of 10.10%) at the end of its 11th quarter on 30 September.
Amit Vadehra, managing partner of the fund, did not respond to repeated emails and phone calls about the fund’s repayment schedule.
Yet another fund, Religare Arts Initiative, isn’t disclosing its payment schedule or current NAV. Set up in 2008 with a 36 month lock-in period, the fund is due for closure in January 2011. Sumithra Ravindran, vice-president, Religare Arts Initiative, said the payment schedule and information would be shared only with investors.
Unlike mutual funds, art funds are not regulated by the Securities and Exchange Board of India, the capital market regulator, and are not required to make public their NAV.
n.subramanian@livemint.com
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First Published: Fri, Dec 11 2009. 12 30 AM IST