For one, the art fund manager is risking his own money in the endeavor and is not paid any management fees by investors for running the fund. Naturally, the use of an incubator fund structure has its drawbacks. In addition, as the incubator fund is not initially marketed to investors, no offering documentation is required to be prepared, thereby taking out the lion’s share of the legal costs associated with launching an art fund. By setting up an incubator art fund and utilizing his or her own money, an art fund manager can develop a proven track record without risk to third party investors. Such charges have a direct impact on the returns to be garnered from investing in works of art, which precludes the use of prior returns by individual dealers/collectors when marketing an art fund. For example, art dealers/collectors neither charge annual management fees and performance fees nor do they incur substantial legal, administration and accounting costs in connection with the formation and ongoing governance of an investment vehicle. While many art fund managers improperly cite their prior investment returns in connection with buying and selling art as a dealer or collector, such returns are not analogous to the operation of an art fund and therefore cannot be legally marketed to prospective investors. Unlike traditional hedge fund managers, who elect to start a hedge fund after years of successfully trading for a previous fund or financial institution, art fund managers have for the most part had no experience in operating an investment vehicle. The use of an incubator fund structure has become particularly popular among prospective art fund managers for a number of reasons. Home » What Are Art Funds Basics of Art Funds and their Managersīasics of Art Funds of Funds and their ManagersĬharacteristics of a Typical Art Fund Investment Characteristics of a Typical Art Fund Investment.Basics of Art Funds of Funds and their Managers.Preferred Access to Art Events and Offerings.Access to Network of Servivce Providers.Incubator Art Funds, The Art Fund Association LLC
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