Another Art Fund is Founded: How Long Until it Founders?

Chris Carlson has decided he's had enough of prop trading, and so he's moving into the art world instead, setting up an art hedge fund. Apparently it's already "raised" £10 million, although I suspect that a very large chunk of that belongs to one C. Carlson.

Art is not something which lends itself to being invested in by dedicated hedge funds, and I don't think that Carlson's hedge fund is going to do particularly well. (It's also not going to be particularly lucrative for Carlson: even with 20% returns and $40 million under management, 2-and-20 comes to only $2.4 million – and that's top line, not bottom line.)

There's certainly a lot of money to be made in the art world, but the real money is made by being willing and able to hold art for long periods of time. In that respect, art is more like property than like securities. Carlson's fund, however, is called the Art Trading Fund: he wants to be able to move in and out of art like others move in and out of stocks. Oh, and he wants to hedge himself, too:

Mr Carlson, a former proprietary trader at Deutsche Bank and UBS, and two co-founders, are aiming to hedge their investments in pictures using exchange-traded options that they believe are closely correlated to the art market.

It sounds like what Carlson wants to do is play his eye for undervalued art. He'll buy an impressionist "cheap", for instance, hedge the broader art market using exchange-traded options, and then sell the painting at a profit. It all seems a bit dubious to me.

I've got a better idea for Carlson, who seems to think that he can replicate art-market returns in the options market: create a tradeable instrument which mirrors the art market. If it works, I think there could be a lot of demand for it.