ABOVE: Detail from Picasso’s Boy with a pipe (1905), the most expensive single painting ever sold at auction for US$104 million. Investment funds hoping to hit it that big have struggled.

The concept of an investment fund that deals exclusively in fine art is one of those things that seems like a good idea but has remained largely unworkable (despite some valiant efforts). Bloomberg yesterday published a longish piece on the perma-fledgling field of art funds, essentially large hedge funds for high-rolling investors looking to diversify their bulging portfolios. Managers like a Mr. Philip Hoffman of London hold their noses and buy the most bankable art they can, storing the paintings or renting them out to their fund clients at a nominal fee until it’s time to sell and cash in for everyone’s collective benefit. But, as numerous people make clear in the article, cornering the market in Rembrandts is very different from the market in, say, soybeans, and more than a few such funds have stumbled early and been put out of their misery.

There’s an interesting bit describing something called the Fine Art Index, a sort of S&P 500 for the art market, which rises and falls with auction results for a selected list of artists and genres. The index climbed 14.5% in 2005 [but then, what index didn’t? - eds.], a handsome ROI for the mucketymucks who had kicked in their quarter mil or more necessary to get into one of the funds. This whole deal apparently parallels what happened in the 80s when the art market was at its last mountaintop, with everyone scrambling to find a way to make a cold, hard investment out of it. It didn’t work so well then, so to the wealthy few who are buying these funds, all we can say is: what goes up, must come down.

LINK: Bloomberg > Picasso Lures Hedge-Fund-Type Investors to Art Market