The average yield of art trusts reaches 8.7%, with 12 products issued by National Investment Trust accounting for one third. A director Wang from the Private Banking Division of Construction Bank said, "The intrinsic value of artworks [paintings and calligraphy wholesale] does not match the price given by the current market; many have bubble components."
Researcher Huiyu Zhang of the Retail Banking Lab of Financial Weekly wrote: "Art investment has become so crazy due to the positive returns in different periods. In the past 5-10 years, the performance of art has exceeded financial assets. The global stock market from 1920 to now has an average return rate of 13.4%; real estate according to the US index averages a return of 6.5%; while art's annual average return rate reaches 14.4%, comparable to stock investment returns and far exceeding the annual return on real estate investment."
"Art investment now ranks alongside real estate investment and financial investment as one of the three most profitable investment projects in the world. With real estate continuously regulated and the stock market sluggish, high-yield art investment naturally becomes the favorite of investors. Art investment also drives investments in other products such as wine, tea, and jade, becoming a representative in alternative product investments."
"Finance + Art," how prosperous would it be? Apparently, it is not only characterized by high yields but also hints at risks.
National Investment Trust issues account for one-third, followed closely by Zhongrong Trust.
In the spring of 2010 art auctions, China Guardian Auctions, Poly Auction, and five other auction companies reached a record-breaking total transaction amount of 11.604 billion RMB, making China the third-largest art market after the United States and the United Kingdom.
According to incomplete statistics from USTrust Studio, the issuance scale of art trusts in the first half of this year was 25.86455 billion RMB, compared to only 125 million RMB during the same period last year, an increase of 1969.16%.
Based on monitoring statistics from the Retail Banking Lab of Financial Weekly, up until September 5, a total of 36 art financial products were issued, among which 3 were bank wealth management products, and the remaining 33 were issued by trust companies.
Among the 33 art trust products, 1 was issued in 2009, 10 were issued in 2010, and the remaining 22 were all issued this year.
According to incomplete statistics from USTrust Studio, in the first half of 2011, seven trust companies participated in the art feast, issuing a total of 14 art trust products, an increase of 11 products compared to the same period last year, representing a growth of 366.67%. The issuance scale in the first half of the year was approximately 2.6 billion RMB, an increase of more than 20 times compared to the same period last year.
In just two months in July and August this year, trust companies issued 8 art trust products, while only 14 art trust products were issued in the entire first half of the year. The madness continues without stopping.
Here, we must mention Minsheng Bank (600016, Stock Bar). In June 2007, Minsheng Bank issued China's first wealth management product investing in art, the "2007 Extraordinary Wealth Management - Art Investment Plan No. 1 Product," pioneering the trend of art financial investment. However, art financial products did not become active from then on.
Two years later, in June 2009, National Investment Trust partnered with Poly Culture and Construction Bank (601939, Stock Bar) to issue the first collective fund trust plan for art, the "National Investment Trust · Shengshi Treasure No. 1 · Poly Art Investment Collective Fund Trust Plan," gradually bringing art trust products to the forefront and gaining favor with increasing numbers of investors. National Investment Trust is considered a leader in the field of art trust products.
Among the 33 art trust products, National Investment Trust accounts for 12, ranking second and third are Zhongrong Trust and CITIC Trust, with 6 and 4 respectively. Among the 11 art trust products issued in total in 2009 and 2010, 9 were issued by National Investment Trust, and the remaining 2 were issued by Jilin Provincial Trust and CITIC Trust. Only 3 such products were issued by National Investment Trust this year, significantly fewer than last year.
It can be said that National Investment Trust seized the opportunity to issue art trust products, far surpassing other trust companies. The second trust company to participate in the issuance of art trust products was Jilin Provincial Trust Co., Ltd., but this was already 15 months after National Investment Trust issued its first art trust product.
However, there is one trust company that we cannot help but admire. This is Zhongrong Trust, whose wolf-like culture makes it ferocious like a wild wolf at any time, able to compete fiercely in any field and remain calm in any competitive environment to move forward bravely.
Zhongrong Trust has issued a total of 6 art trust products, all of which were issued this year. Although Zhongrong Trust entered the art trust product field late, it has shown strong offensive capabilities.
The scope of investment is diversified, and the level of returns varies greatly.
Relevant data shows that the annual average return rate of art reaches 14.4%, comparable to the average return rate of the stock market and far exceeding the annual return rate of real estate investment. This is the key reason why it is favored by investors.
Among the 33 art trust products statistically analyzed by the Retail Banking Lab of Financial Weekly, the expected yield of 12 of them is unclear, while the expected yield of the remaining 21 falls within the range of 6%-12%, with an average yield of 8.7%.
The expected yield of each trust company's products generally shows consistency, such as 9% for National Investment Trust, 8% for Zhongrong Trust, and mostly 6.5% for Huao Trust. There are 6 products with an expected yield of over 10%, mainly issued by Beijing International Trust, Zhongrong, and CITIC Trust.
The "Mo Yun No. 1 Art Investment Fund Trust" has an issuance scale of 31 million RMB, a term of 3 years, and will expire in August 2014. The funds raised will mainly be used for transactions of modern and contemporary Chinese painting works; idle funds may be used for bank deposits, money market fund investments, etc.
Among art trust products, those invested in paintings and calligraphy are relatively common. For example, the "Xianghuashi" series jointly launched by Shanghai International Trust and Shanghai Zhengda is also the first art sunshine private equity fund launched by Shanghai's trust industry. 70%~80% of the funds are invested in the works of contemporary native (Chinese) painters, and 20%~30% of the funds are used for art marketing investments, possibly investing in bank deposits, government bonds, etc., depending on the investment rhythm.
In addition to paintings and calligraphy, the investment scope of art trust products shows diverse characteristics. For example, the "Wen Dao Fan Yun Elegant Play Investment Fund Trust" issued by CITIC Trust mainly uses the funds raised for transactions of ancient elegant play art objects such as rhinoceros horn and ivory carvings; while the "Boya Phase I Art Investment Trust" issued by Xi'an International Trust mainly uses the funds raised to acquire art objects and miscellaneous items such as fine porcelain from various dynasties in China, guqin, cultural artifacts, furniture, etc.
Repurchase mechanism is the key to product structure design.
For most art trust products, product structure design is very critical. Good product structure design can minimize risks. Generally, art trust products have investment advisors and set corresponding repurchase mechanisms.
For high-yield and high-risk art trust products, most trust companies set up senior entrustors and junior entrustors, institutional entrustors and natural entrustors. For example, the expected yield of the "Bangwen Legacy Treasure Trust" issued by Zhongrong Trust is specified as follows: fixed income for senior beneficiaries: expected trust yield 10%/year; 50% of excess income (if any); fixed income for junior beneficiaries: 10%; 50% of excess income.
"The investment advisor bears the role of a loss buffer, with the obligation to lose first and gain later; while investors enjoy the effect of a loss buffer point, with the right to lose later and gain first. Customers must carefully analyze the repurchase mechanism of art trusts." said Ms. Cai from Shangguo Trust.
The repurchase mechanism of the third phase of Shangguo Trust's Xianghuashi product is "tiered + buffer." The investment advisor invests 10 million RMB, and Shangguo Trust needs to raise 50 million RMB in funds, sold in tiers based on the investment threshold and risk tolerance of the entrustors, satisfying the risk preferences of different investors.
Shangguo Trust divides its entrustors into three categories: Layer A, Layer B, and Layer C. Layer A refers to public issuance, with a minimum investment of 750,000 RMB per entrustor, enjoying the effect of a loss buffer, having the right to lose later and gain first; Layer B refers to targeted fundraising, where specific entrustor funds are allocated according to the scale of Layer A fundraising at a ratio of 1:3, bearing the role of a loss buffer, having the obligation to lose first and gain later; Layer C is also publicly issued, but with a higher threshold than Layer A, with a minimum investment of 3 million RMB per entrustor, directly enjoying the gains and risks of the trust plan unit net asset value.
It can be said that the repurchase mechanism is a crucial step in the design of art trusts. However, Ms. Cai also indicated that defining the investment scope is also very important for this type of product.
"Our Xianghuashi Phase One painters are still building positions because it is uncertain, and painters need to be slowly selected, requiring three years... However, since Phase Three is fixed, building positions only takes one year. Some investors think that if the investment scope is not defined, diversified investment is better, ensuring guarantees if prices rise high. But some investors feel more certain if they know whose paintings they are buying when purchasing. Therefore, we have set different investment method products." said Ms. Cai, who is familiar with this product from Shangguo Trust.
"CITIC Mo Yun No. 1" mainly invests in the paintings of modern Chinese master artists, including Qi Baishi, Xu Beihong, Pan Tianshou, Hongyi, and Zhang Daqian, among others.
Choosing art trusts more often involves choosing investment advisors.
The sharp increase in art trusts and their high yield characteristics have caused concerns among market insiders. Product structure design merely hopes to minimize risks to the greatest extent possible, but the risks of art trust products mainly depend on the market.
A Director Wang from the Private Banking Division of Construction Bank, who has conducted extensive research on the art market, said, "The intrinsic value of art does not match the price given by the current market; many have bubble components. Many people's purpose in doing art is not purely investment; there is much speculation. Art trusts may not have much relation to the value of art, but they do relate to their investment advisors."
"After all, this is a niche market. China's capital is also abundant, but China's cultural prices are slightly lower compared to abroad. We can only say that the current market is very lively, and market sentiment is high, which is also related to the value of the Renminbi and the money supply." He is not optimistic about the art market, but he simultaneously believes that art trust products have little correlation with the true art market.
Another insider, Ms. Wu from ICBC, does not agree with the current notion of bubbles in the art market, "There is no definitive conclusion regarding art itself; even expert appraisals may be wrong, and results could differ under different times and circumstances."
But as art trusts, Ms. Wu similarly believes that choosing investment advisors is the primary risk factor.
"CITIC Mo Yun No. 1 chose Xingshi, the best-performing listed trader on the Shenzhen Cultural Exchange. This company's artworks are appraised by experts from the Ministry of Culture. Transactions are conducted through the platform of the Shenzhen Cultural Exchange, where at least three experts evaluate the artworks, and only when all three experts' opinions are unified, is the transaction allowed."
"Choose good investment advisors and assess the level of the investment advisors. Even good investment advisors might make mistakes, so whether subsequent insurance measures can avoid risks requires learning and developing judgment skills. Carefully examine the scope of art investments, the authorship of the specific works being invested in, and the market conditions of the products. First, consider your risk tolerance and choose responsible and professional financial institutions."