A look at Robo-Investing service, Arthena, and whether it does indeed offer a “smarter way to invest” in the tumultuous and volatile Art Market.
With smartphone apps quickly becoming the driving point for many businesses, this has also seen a rise in traditional services migrating to this platform. One of particular note is that of financial investing, a market seeing exponential growth. Which has seen considerable competition in recent years due to mobile automated investing services known as “robo-invetors”, using this platform, Arthena is bringing the vocation of investing in art to a consumer base who frequent art fairs.
In Their Own Words
“Arthena is a venture-backed financial technology company which has pioneered a quantitative strategy for asset acquisition, allowing for targeting investment decisions in segments that have potential to show both strong historical returns and high liquidity. Arthena is committed to bringing transparency to art investing, enabling investors to view and learn about acquired assets and artists. “ – From their website
“Arthena is the first quantitative investment firm for art assets”
Partnering with reputable companies such as Amazon Web Services, Assure Services, Bowles Liberman Newman and Google, Arthena has positioned itself for success by leveraging each of these sectors expertise and bringing all their strengths to the table to produce a high value product. With a team consisting including people from Tech and finance, and of course Law and Art, their collective knowledge base allows them to be able to tackle problems from various angles and various sectors to provide a point of view that might not ordinarily arise.
How Does Arthena Work?
Much in the same way that traditional investment funds operate, Arthena follows this same model, by offering various funds for people to buy into, however in this case, the asset is not mutuals or stocks, but works of art that have been carefully curated and selected by their various art advisors. These funds are privately offered, and only registered users/investors that have been certified as “accredited investors” may see the specifics of each fund.
Assets are primarily acquired from major auction houses due to the price transparency they afford, when selling a product to a financial institution or bank, an important factor is the provision of independently sourced pricing information for the asset (something only offered through auction houses). This allows investors of the funds, and the and the firms that they work with the ability to go online and look up the price the fund has paid for an asset.
The funds themselves are structured according to level of artist and monetary risk, (see below example) so investors can chose to go with an established and less risky group of assets predominantly within the Fine Art era, or emerging and up-and coming artists who’s works might be a more of a risk due to little market influence or exposure. Funds will vary in terms of quantity of holdings, duration of holding, or portfolio restrictions.
Buy-in minimums usually sit around $10,000 USD but can vary depending on the type of fund, this helps to ensure that the fund manager can maximize the strength of the fund and has an increased number of opportunities.
Investors pay no annual management fee, as Fund expenses are included in the target size of the fund and do not constitute an additional fee to investors (1.5% of original investment amount). By working with various partners within the art world, Arthena is able to negotiate competitive rates when it comes to insurance and storage and as such, does not pass on additional fees to investors.
“I started this firm because I really wanted to bring transparency to this market, and really broaden the market”
– Founder & CEO, Madelaine D’Angelo
Arthena takes what is known as carry (an industry-standard 20% of any profits) from each fund. Carry is calculated only after all principal investment has been returned (similar to venture capital firms, private equity firms and hedge funds), which means Arthena profits only when its funds profit, which benefits their customers in that they have a mutually invested interest for the fund to do well.
For Institutional clients, a standard 2% management fee and a 20% performance fee occurs. An additional fee of up to 1.5% is assessed to cover storage, shipping and insurance for acquired assets however, these amounts will vary according to the fund.
With larger funds you have a certain amount of economy and scale available to you, with equity/crowd funded funds such as Arthena, the administration costs add up rather quickly, for example, purchasing a $400 storage crate, is a notable expense for a smaller fund than it would be a $1 million fund or a $ 20million fund. To help leverage these costs without passing them onto the investors, Arthena will often price assets for private clients or investors and charge a fee for that.
Eligibility and Legal Commitments
While Arthena is a New York City based investment fund, access is open to individuals outside of the United States; however recommend potential investors to consult a tax agent first if they are concerned about tax implications. All investors must meet US accreditation regulations before investing (this can be handled by Arthena through their user dashboard), these include:
- Type of collecting entity (individual, trust, firm)
- A letter from your attorney/designated third party advisor, stating that you have presented documents that indicate either income or assets above the required accreditation threshold
- The date and total debts (excluding mortgages) from your credit report
- The date you last confirmed you were still accredited
For further information please see their FAQ page.
While there are some younger inventors on the platform, everyone has to fit into the high net worth investor sector as the fund is only open to accredited investors due to it being treated as a security. Access is closed off to investors who make less than 250,000 a year or have less than a million dollars in net worth, foreign investors are still represented.
“The art market keeps growing and expanding… it may be down in value this year, but not in volume, which is interesting and is becoming more widely accepted.”
– Founder & CEO, Madelaine D’Angelo
Criticisms & Detractors
As with most types of financial investments, Arthena maintains that the art holdings be kept for a period of roughly 5 years, during which, they are kept in secure storage and insured, the main criticism of this is that it is enforcing the practice of keeping fine art locked away in storage and away from the viewing public. This method is something that many art connoisseurs are adamantly against as it lends to the mindset that “Art is only for the upper class” and that it should be acquired. not enjoyed.This prevailing attitude towards art buying that puts price and value first and the feeling, enjoyment a distant second. As art funds become more accepted in the market, the increased risk of showing what assets we have, might hurt the saleability of the assets in the future.
Another concern is that this growing form of art holding, will drive people to see art purely as an investment for monetary gain, distorting the very message behind the works themselves.While time will only reveal how popular these types of investment types will become, it does raise some questions regarding its methods, pending the necessary insurance coverage, one could potentially see these funds lending out their artworks to private and/or public institutions for the greater public to enjoy, which could in itself help to increase the value of the pieces due to general exposure.
Co-Founder & CEO; Madelaine D’Angelo
The name “Arthena’ was born from the merging of the greek goddess of art and wisdom, Athena (a common source of inspiration for investment funds, ancient greek mythology) and naturally, the word “art”. This was so as to come up with a business name that would resonate well in the investment world.
“Our goal is to break down the market and look at it from a purely financial perspective, to be able to open it up to a much wider audience” says D’Angelo.
The original dream for Arthena was to be a full retail fund, allow for a wider audience to participate, feel comfortable in, and all provided in a language they speak, this is still something that we would like to pursue in the future. Moving ahead, the goal is to continue to work with wealth mangers and private banks to continue to expand the product, and make it an asset class that is more widely accepted.
Fortunately, we have a lot of people reach out to as for information in regards to the market as a whole, as they see of us as an authority when it comes to pricing in this asset class, and we are seeing a increase in the number of wealth managers or family offices, interesting in offering some type of art investment to their clients. “Which tells us that there is a great demand for a product like this.”