The ultimate financial instrument

PORTFOLIO POINT: A fine musical instrument could also prove to be a splendid financial instrument for your portfolio.

From an investment perspective, its sounds like music to one’s ears.

Good prospective capital growth and fairly strong returns from an asset that is, literally, unlike any other investment play in the world.

Forget equities, fixed interest, property or cash – we’re talking about fine musical instruments here, and now there’s a way for high net worth investors to get in on the gig, thanks to the recent launch of an exclusive wholesale investment fund managed by the Australian Chamber Orchestra.

The ACO’s Instrument Fund, launched in June 2011 with the backing of substantial donations made by philanthropists, long-standing patrons and business persons, certainly operates on the basis of asset quality, not quantity. Indeed, so far it has only one asset – a Stradivarius violin, valued at $1.79 million. But other musical instrument purchases are in the wings, and individuals who meet the fund’s investment criteria with a minimum investment of $50,000 might want to take a closer look.

Jessica Block, deputy general manager of the ACO and director of the ACO Instrument Fund, says the fund purchases fine musical instruments through reputable brokers so they may be played by members of the ACO. The fund’s sole violin is a combination of two Stradivarius violins made in 1728 and 1729, and is played by Satu Vanska, the ACO’s assistant leader.

“I would never have dreamed of being the custodian of a Stradivarius, the epitome of fine violins. Its distinctive, brilliant beauty of sound carries in a concert hall through the ears, straight to the listener’s heart,” Ms Vanska says about her opportunity to play this instrument.

The ACO Instrument Fund’s net worth is now just over $2 million, and inquiries are being made for the purchase of a second instrument. Investors in the fund so far have been ACO board members, long-term and private investors, according to Ms Block.

Altogether there are five directors of the ACO Instrument Fund, which is managed by the ACO itself, with JBWere the AFSL holder for the fund.

Previously ACO musicians who were not in a position to purchase instruments worthy of their talent would only be able to play them if they were donated or loaned to them. Many orchestra members have been fortunate to acquire their instruments in this way.

Richard Tognetti, ACO’s artistic director, plays a violin provided by an anonymous owner. The Commonwealth Bank owns the violin played by the principal second violin, Helena Rathbone, and Peter Weiss, philanthropist and long-time supporter of the ACO, owns the violin played by principal cellist, Timo-Veikko.

Mary Stielow, a spokeswoman for the ACO fund, says she hopes its establishment is a proactive strategy to attract similar 'benefactors’.

According to Kerry Keane, a musical instrument specialist based in New York for Christies who spoke to Eureka Report, the concept of such a fund has been around for a while.

He says Nigel Brown, a well-known investment banker in the UK, recognises the value in such instruments and organises syndicates for their purchases.
But does it make money?

The figures for the ACO fund’s annual return rate are due to be released in the next few months.

“While past performance is no guarantee of future performance, our research shows that fine instruments from the Golden Age tend to appreciate in value by up to 7% through public sales and by up to 8-10% through private sales,” Ms Block says.

“Based on that research, we hope to be able to provide a reasonable level of return to our investors, over the years ahead.”

Mr Keane says it is hard to estimate the return when investing in fine musical instruments. This is because each instrument is unique. Indeed it would have to be suggested this sort of investment is not mainstream and should be considered 'alternative’.

Christie’s Keane stresses “one has to buy very wisely”, but he does say there are cases where the increase in value of an instrument has surpassed expectations.

A Blunt Stradavari violin was sold in 1973 to a private Hong Kong investor in an auction run by Sotherbys for US$250,000.

In 2005-2006, the same instrument was sold privately for US$10 million to the Nippon Foundation and then last year, in 2011, it was sold at auction by Christies for $16 million to a private collector.

Keane says there are six essential features to keep in mind when making a decision to invest in a fine musical instrument:

Attribution – who made the work;
Quality – whether the piece is one of the greater or lesser works of its maker;
Condition – how does it survive in its originality;
Provenance – who owned the instrument in the past and whether it has a performance history to a recognised virtuoso or virtuosos;
Freshness – whether the instrument has had few or several owners; and
Fashion – what music or style is in fashion and the capacity of the instrument for this style.

Mr Keane says growth in value of these instruments has been steady, not volatile and attributes this to the fact that investment has traditionally been driven by passionate collectors, not market capital.

With its philanthropic aspect as well as the promise of steady growth, this type of investment is guaranteed to pull at a few heartstrings.