Institutional investors grow to appreciate wine

By Chris Vellacott

LONDON (Reuters) - Funds specialising in niche assets such as art and wine, long the preserve of ultra-rich hobbyists, are seeing a spike in interest from more mainstream investors seeking an antidote to the complexity of hedge funds.

As economies recover, interest has revived among traditional wealthy clients, but managers also tell of growing interest from institutions who have tended to avoided such illiquid assets.. Some have become confident enough in the trend to launch new funds.

"Attitudes are starting to change and we're talking to large institutions which have the ability to write some large, meaningful cheques," said Geordie Manolas, managing director at First State Media Group, which runs a fund that invests in music publishing rights and recently bought the catalogue of singer Sheryl Crow.

Solid returns throughout the crisis as other asset classes crashed, and a lengthening track record for some funds, are translating into increased acceptance among investors, though figures are difficult to come by.

Investing in art has precedents for institutions: the British Rail Pension Fund achieved 11 percent annualised returns on art assets from the late 1970s until the late 1990s, but most existing funds are less than 10 years old.

The Fine Art Group, established in 2001, recently bought a work by David Hockney for around $850,000 and has notched up an average annualised return on assets sold at its funds of 30 percent.

On the back of this, institutional investors now make up around 20 percent of the assets and the group is targeting $100 million for a new venture by year-end, according to Philip Hoffman, chief executive.

"The institutions wanted to see a five-year track record and properly structured teams," he said, adding that money invested in art funds would be around $350 million by year-end, up from around $200 million at the beginning of the year.