Collection of Modern Art Fund presentation
DECEMBER 2010
Collection of Modern Art
What is this fund- Why Post-war art and a “buy & hold” strategy?
Art has outperformed other asset classes
Art and gold, two real assets
Art can improve your risk return profile
Short term price influence
Art market review/outlook
Source: Castlestone Management
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What is the Collection of Modern Art?
Fund Objective The primary investment objective is the preservation of capital and the creation of long-term wealth, whilst offering a hedge against inflation. Fund Strategy The Collection of Modern Art can invest across a diversified portfolio of museum quality post-war art. The fund invests predominantly in works by non-producing or deceased blue-chip artists and employs a buy and hold strategy.
Fund overview Access to the benefits of art investment through an expertly managed collection of museum-quality Post-War art Investment in predominately non-producing/deceased “blue-chip” artists with established secondary markets Investment strategy: “Buy and Hold” which is the only proven investment strategy Active portfolio management: loan to museum exhibitions, literature and other promotional activities USD/EUR/GBP 10,000 minimum investment for retail share classes BVI mutual fund, 8-year investment period with monthly liquidity
Source: Castlestone Management. *€EUR & £GBP share classes.
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Why Post-War Art?
1600
1900
1945
2000
Old Master Paintings
Impressionism / Expressionism
Post-War / Modern Art
Contemporary Art
(deceased or non-producing artists)
Still producing
Shrinking supply + Increased demand = Maximum price appreciation
Very speculative
Very rare Very expensive
E.g. Rembrandt († 1669)
E.g. Monet († 1926)
E.g. Jeff Koons
E.g. Andy Warhol († 1987)
Price range: $10-40 million
Price range: $250k-1 million
Price range: $50k-1 million
The Golden Middle Too established / rare + Too expensive = Limited price appreciation
Source: Castlestone Management.
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Too speculative Too risky
Intended collection*
Maximum diversification – 100 works of art by 50 artists represented in the AMR Post-War Art 50 Index
Andy Warhol
Lucio Fontana
Robert Rauschenberg
Francis Bacon
Roy Lichtenstein
Jasper Johns
Alberto Giacometti
Rene Magritte
Jean-Michel Basquiat
Henry Moore
Lucian Freud
Keith Haring
Pablo Picasso
Niki de Saint-Phalle
Yves Klein
Sol Le Witt
Alexander Calder
Jackson Pollock
Willem de Kooning
Joan Miro
Note: *This list is not exhaustive, and is used for indicative purposes only.
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Why buy and hold strategy
Long- term wealth preservation to hedge against inflation Only proven investment strategy for art is “buy and hold”
La Peau De L’Ours (The Skin of the Bear):
British Rail Pension Fund:
Holding period: Annualised return:
Holding period: Annualised return:
1904 - 1914 14.8%*
Source: *The New Yorker, 2005. **The Economist, August 23, 2003.
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1974 - 1999 11.3%**
Art, long-term outperformance over equities
450% AMR Post-War Art 50 Index 400%
S&P 500
350%
Cumulative Return
300%
250%
200%
150%
100%
50%
0% Jan-2000
Jan-2002
Jan-2004
Source: Bloomberg, AMR & Castlestone Management. Data runs from January 2000 – November 2010. Note: Past performance cannot be relied upon as a guide for future results.
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Jan-2006
Jan-2008
Jan-2010
Art lags equities 6 – 18 months*
140% AMR Post-War Art 50 Index S&P 500
Cumulative Return
120%
100%
80%
60%
40% Dec-2008
Apr-2009
Aug-2009
Dec-2009
Source: Bloomberg, AMR & Castlestone Management. Data runs from December 2008 – November 2010. * Mei Moses Note: Past performance cannot be relied upon as a guide for future results.
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Apr-2010
Aug-2010
Art and gold, real assets
500%
AMR Post-War Art 50 Index Gold Bullion 400%
Cumulative Return
Art prices still lag gold 300%
200%
100%
0% Jan-2000
Jan-2002
Jan-2004
Jan-2006
Source: Bloomberg, AMR & Castlestone Management. Data runs from January 2000 – November 2010. Gold Bullion: London Market PM Fixing. Note: Past performance cannot be relied upon as a guide for future results.
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Jan-2008
Jan-2010
Art and gold display similar characteristics
Art Work
Holding Period
Purchase Price
Sale Date
Sale Price
Annualised Return
Gold Bullion per ounce
12 Years
$288.70
2010
$1,339.00*
14.9%
Andy Warhol – Coca-Cola(4)
27 Years
$143,000
2010
$35.4 million
22.6%
Andy Warhol – Self Portrait**
12 Years
Approx $9 million
2010
$32.6 million
10.7%
Mark Rothko – Untitled***
13 Years
$1,872,500
2010
$31.4 million
25.3%
Source: Austin Gold Information Network, * Bloomberg – London PM Fix 19 October 2010, **Artasanasset.com, Beautiful Asset Advisors LLC Flash Report May 2010, ***Artnet.com & Castlestone Management Note: Past performance cannot be relied upon as a guide for future results.
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Art can improve your risk return profile
9%
Efficient Frontier
Portfolio A: Bonds, Equities, Commodities & Art
Adding Art to a portfolio can considerably improve returns at the same level of risk
Portfolio B: Bonds, Equities & Commodities
Annualised Returns
8% Adding Art to a portfolio can considerably improve returns at the same level of risk 7%
6%
5% 1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
Standard Deviation
Source: Bloomberg, AMR & Castlestone Management. Data runs from Jan 1995 – April 2010. Note: ART refers to the AMR Post-War 50 Index, EQUITIES refers to S&P 500, BONDS refers to Merrill Lynch Global Government Bond Index, COMMODITIES refers to S&P GSCI. Past performance cannot be relied upon as a guide for future results.
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Art has outperformed other asset classes
January 2000 – November 2010
ART
STOCKS
BONDS
COMMODITIES
Annualised Return (over total period)
11.54%
-1.98%
4.68%
1.95%
Annualised Volatility (over total period)
10.69%
16.33%
3.01%
24.93%
-0.086
-0.028
-0.031
Correlation (over total period)
Source: Bloomberg & Castlestone Management. Note: ART refers to the AMR Post-War 50 Index, STOCKS refers to S&P 500, BONDS refers to Merrill Lynch Global Government Bond Index, COMMODITIES refers to S&P GSCI Past performance cannot be relied upon as a guide for future results. Date Range: January 2000 – November 2010
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Short-term price influences
Supply from deceased or non-producing artist constantly shrinks
Boom in art museum construction
“Bilbao Effect” – population growth, increased tourism
IRS tax rules
Collectors incentivised to donate art works to museums
Art as a hedge against inflation
Demand increases as more immune to economic downturns
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Quantity theory of money
MV = PQ M = Money Supply V = Velocity P = Price Q = Quantity
Note: Based on the assumption that „V‟ is always constant and positive
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Example
Production moves to China
MV = PQ Higher production levels mean quantity (Q) increases whilst prices (P) decrease
Note: Based on the assumption that „V‟ is always constant and positive
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Gold mining
MV = PQ Gold is a finite resource and as quantity (Q) decreases prices (P) will increase
Original works of art are unique
Quantity cannot change Q = 1
As Q becomes constant money supply (M) will directly affect art prices (P)
MV = PQ M = Money Supply V = Velocity P = Price Q = Quantity
Note: Based on the assumption that „V‟ is always constant and positive
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Art market review 2009
Andy Warhol, 200 Dollar Bills Sold for $43 million
London auction estimates declined 30 - 40%
Jan
Feb
Mar
Holding period:1986 – 2009 Annual growth: 22.84%*
Apr
May
Jun
”The bottom of the art market has already been reached for Post-War art”
Jul
Aug
Sep
Oct
Nov
Mei Moses All Art Index has risen by 13.1% in Q4 2009**
Edward Dolman, CEO Christie’s
London Auctions
Source: *Bloomberg, **Mei Moses
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Dec
NY Auctions
Auction bidders – back to highs...
300
Number of lots offered Number of bidders
Average number of bidders and number of lots offered in New York evening sales since 2004
250
200
150
100
50
0 Spring 2004
Fall 2004
Spring 2005
Fall 2005
Spring 2006
Source: Sotheby‟s & Castlestone Management. Data runs from Spring 2004 – Fall 2009. Note: Past performance cannot be relied upon as a guide for future results.
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Fall 2006
Spring 2007
Fall 2007
Spring 2008
Fall 2008
Spring 2009
Fall 2009
Art market review 2010 & outlook
Auction sales volume up 162%* Bidding war for Roy Lichtenstein’s “Collage for Nude with Red Shirt”
Auction sales volume up 130%*
Drove price to $4.1m (Estimate: $900K – 1.2m)
Alberto Giacometti’s Walking Man I
Quadruple its estimate!**** (Click Here to Watch Video)
sold for $104.3m (new world record price)
Mei Moses Post War Art index: +35% YTD***
Annual growth: 14.16%**
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Auctions sales volume up 110%*
Auction sales volume up 157%*
Sep
Oct
Nov
Dec
Auctions sales volume up 92%*
Pablo Picasso’s Nude, Green Leaves and Bust
Marino Marini Sculpture
Andy Warhol’s “Men in her life”
sold for $106.5m (new world record price)
sold for £4.5m
sold for £63.3m
Annual growth: 15.5%**
(estimate £1.2-1.8m)
Andy Warhol’s “Coca-Cola (4)”
Record auction price for the artist
sold for £35.4m, Annual growth 22.6%***** Roy Lichtenstein’s “Ohhh…Alright…” sold for £42.6m
London Auctions
NY Auctions
Record auction price for the artist Day auctions average price above 2006 level******
Source: *Castlestone Management calculated from Christie‟s & Sotheby‟s data, ** ArtPrice, *** Artasanasset.com, Beautiful Asset Advisors, **** Collection of Modern Art owns a comparable work. *****Castlestone Management & Bloomberg. ******Day auctions offer works around or below the $1m estimate range. 2006 was the year before the art market boom in 2007/2008.
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Conclusion
Real Assets portfolio weighting of 18% to 30% to hedge against the devaluation of money $/€/£ 10,000 minimum investment – access to the benefits of art investment as a means of portfolio diversification Expertly managed portfolio of Post-War art from deceased or non-producing blue chip artists Art has outperformed all other asset classes in the long run and serves as a safe-haven investment such as gold Art lags the equity market 6 - 18 month – True!*
Source:. * House view.
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Important information
This document is intended for and directed at investment professionals and is not intended for retail customer use. This document is not offering to sell any product. Any transaction requires our subsequent formal agreement which will be subject to internal approvals and binding transaction documents. Castlestone Management (“We”) will not be liable for any use you make of any information in this document. We are not your advisor or fiduciary. We are not recommending or making any representations as to suitability of any product or the tax, legal or accounting treatment of any product. We are not responsible for information stated to be obtained or derived from third party sources. All opinions are given as of the date hereof and are subject to change. We are not obliged to inform you of any such changes. Any simulated performance data and/or past performance data contained herein is not a reliable indicator of future performance. Income from investments may fluctuate and investors may not recoup the amount originally invested. Any forward-looking statements concerning the financial condition, results of operations and businesses of Castlestone Management expressed or implied, are based on management's current expectations and assumptions, which may change without notice, and are no guarantee of future results, performance or events This document is confidential. No part of it may be reproduced, distributed or transmitted without Castlestone Management‟s written permission. Neither this document nor any copy of it may be distributed, directly or indirectly, in the United States of America or its territories or possessions (the “United States” or to any US Person as defined in Regulation S under the United States Securities Act of 1933 (as amended). Any failure to comply with these restrictions may constitute a violation of United States securities law. This is not exhaustive; other regional-specific wording may apply. If in doubt, please consult with Castlestone Management‟s Legal and Compliance department. Castlestone Management Limited is authorized and regulated by the Financial Services Authority in the UK. Castlestone Management Limited is authorized by the Financial Services Board in South Africa. Castlestone Management Inc. is regulated by the British Virgin Islands Financial Services Commission.
This scheme has been entered into the List of Restricted Schemes by the Monetary Authority of Singapore under paragraph 2(3) of the Sixth Schedule to the Securities and Futures (Offers of Investments)(Collective Investment Schemes) Regulations 2009 for distribution to institutional and accredited investors.
December 2010 – 17.12.10
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