Chris Carlson has decided he’s had enough of prop trading,
and so he’s moving into the art world instead, setting up an art
hedge fund. Apparently it’s already "raised" £10 million,
although I suspect that a very large chunk of that belongs to one C. Carlson.
Art is not something which lends itself to being invested in by dedicated hedge
funds, and I don’t think that Carlson’s hedge fund is going to do particularly
well. (It’s also not going to be particularly lucrative for Carlson: even with
20% returns and $40 million under management, 2-and-20 comes to only $2.4 million
– and that’s top line, not bottom line.)
There’s certainly a lot of money to be made in the art world, but the real
money is made by being willing and able to hold art for long periods of time.
In that respect, art is more like property than like securities. Carlson’s fund,
however, is called the Art Trading Fund: he wants to be able to move in and
out of art like others move in and out of stocks. Oh, and he wants to hedge
Mr Carlson, a former proprietary trader at Deutsche Bank and UBS, and two
co-founders, are aiming to hedge their investments in pictures using exchange-traded
options that they believe are closely correlated to the art market.
It sounds like what Carlson wants to do is play his eye for undervalued art.
He’ll buy an impressionist "cheap", for instance, hedge the broader
art market using exchange-traded options, and then sell the painting at a profit.
It all seems a bit dubious to me.
I’ve got a better idea for Carlson, who seems to think that he can replicate
art-market returns in the options market: create a tradeable instrument which
mirrors the art market. If it works, I think there could be a lot of demand