Institutional Investor's Alpha Magazine - September 2008 - (Page 8)

Art of Investment L ooking to swap that Renoir for a Chagall and hedge your bet with a piece by Picasso? As commodities tank and credit woes persist, funds that trade in art may at last be ﬁnding their way into investment portfolios. “Investors have been turning toward alternative investments since the credit crunch — they’re seeking out assets that are real and tangible,” says Ruth Johnson, head of investor relations at the London-based Fine Art Fund (worth “in excess of $100 million” according to its managers). Another London-based fund, the Art Trading Fund — London seems a hotbed for such offerings — imposes the classic hedge fund 2 and 20 fee structure. It was conceived four years ago by Justin Williams and Chris Carlson, who proposed turning a hobby — they had been investing in art with a small group of friends — into something bigger. They launched the fund, now worth $10 million, in July 2007 and are raising money for a sequel. Williams says that the fund, like other exotics, is meant for entrepreneurial investors seeking an unusual, limited play for perhaps 5 to 10 percent of their overall portfolio — “people who are much less risk-averse in the ﬁrst place.” He says most of the ten or so investors in the Art Trading Fund have experience in the art world; half are individuals, half are institutions. The fund does not try to short the market, but looks instead for gains by holding pieces for ﬁve to ten years. It hedges by buying “luxury brand stocks” like Coach and BMW Group, Williams explains. Just because it’s about art doesn’t mean there isn’t due diligence. Issues of authentication and provenance dictate multiple prepur- Check Out the Big Brains mong hedge fund ﬁrms, $39 billion quant shop D.E. Shaw & Co. is known for its brainy corporate culture and its obsession with recruiting. Prospective employees are almost always asked to produce their college math scores and grade point averages, and the 1,500-employee firm casts its net far and wide, from online message boards like mediabistro.com (“Day Job Seeks Artists!”) to top universities in Russia and India. The ﬁrm has more than 100 people dedicated full-time to hiring. Still, it took D.E. Shaw more than a year to ﬁnd a new chief ﬁnancial ofﬁcer. In August it announced that it had hired Christopher Zaback to replace longtime CFO Stuart Steckler, who becomes chief administrative officer. Before joining Shaw the 40-year-old Zaback was CFO at $ 4 billion New York–based hedge fund ﬁrm Sandelman Partners. “He helped build a ﬁrm and an infrastructure,” says Steckler, who knew from the get-go that Zaback was a person of “D.E. Shaw caliber: remarkably smart, driven and multitalented.” With Zaback on board, Steckler says he can now focus on the big picture: overseeing the ﬁrm’s sixmember executive committee, drumming up new business and launching more funds (he initiated the search for a CFO because he was spread too thin). Steckler’s role as CAO is actually more typical of a job at an investment bank, but big hedge funds like A chase assessments by independent consultants and inspections of the art by accounting ﬁrm KPMG. It’s not just a matter of buying pretty pictures and putting them on the wall. The Fine Art Fund owns 100 to 200 pieces at any given time, which Johnson says it keeps in a Swiss warehouse, holding them much like a private equity stake but charging traditional 2 and 20 fees. It assigns valuations in consultation with auction houses and art experts. Williams says the art market is buoyed in rough times by the conﬁdence superwealthy investors have in the staying power of great work. The Art Trading Fund II is closing its fundraising on September 30 and hopes to open with $35 million to $50 million. The minimum investment: £100,000 (about $175,000). The target annual return: 30 percent. The level of interest: not bad. “We are having a much easier time than if we were in the usual suspects of equities and bonds,” Williams notes. He won’t disclose what works the Art Trading Fund I has held, but he says pieces by Monet, Renoir and Degas have been on its books. One selling point for some investors: They get to borrow the art for free and hang it in their living rooms. Williams says about half the fund’s investors take advantage of that perk. — Danielle Beurteaux D.E. Shaw and $20 billion-in-assets Chicago-based Citadel Investment Group are increasingly starting to resemble such ﬁrms. Indeed, the Zaback appointment is one of several moves D.E. Shaw has made to expand operations. Others include the creation of an independent audit group and the hiring of a chief risk ofﬁcer. After Labor Day the ﬁ rm announced a couple of other senior appointments in the front ofﬁce, including the formation of a new asset-backed securities group. For a ﬁrm that likes to take these things slowly, D. E. Shaw has been on a tear. — Imogen Rose-Smith Ospraie’s Troubled Hatchling T DAVID JOB/GETTY he decision to close his ﬂagship $2 billion Ospraie Fund isn’t the only recent setback for Dwight Anderson, founder of Ospraie Management, the $9 billion-in-assets New York–based ﬁrm. The Ospraie Wingspan fund, it seems, is going through some seriously tough times too. Wingspan was launched in 2005 as a joint project by Anderson and the now-defunct Lehman Brothers 8 • INSTITUTIONAL INVESTOR’S ALPHA • SEPTEMBER 2008 http://www.mediabistro.com

Table of Contents Feed for the Digital Edition of Institutional Investor's Alpha Magazine - September 2008

Institutional Investor's Alpha Magazine - September 2008 Contents Letter from the Editor Longs & Shorts Pension Corner: Culling the Herd The Good Guys: Ending the Cycle Interview: Press Credentials Cover Story: Rethinking Chris Hohn Strategies: At the Edge of the Earth Profile: Alpha Femals Strategies: Tails, You Lose Research Center: The Top Equity Trading Firms Alpha Bytes: The Light Is On Unhedged: Commentary: Not-So-Dire Diagnosis

Institutional Investor's Alpha Magazine - September 2008

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