NFTs: Reshaping art as an alternative asset class

In the beginning, the buzz surrounding non-fungible tokens (NFTs) in the art world had art collector and investor Freda Isingoma as puzzled as anyone else.

Of course she knew that art was worthy of an investment fund, after launching her own KIISA ART fund and raising money despite the pandemic. The headlines though regarding Beeple this past March as one NFT investor that had bought a Beeple in 2020 for $67,000 reportedly sold it for $6.6 million just five months later.

“Art is definitely an asset class and has been for a while,” said Isingoma, an art investment fund manager with a focus on contemporary African and Diaspora Art. “However, the tide appears to be turning in whether or not art is widely viewed as an asset class. NFTs appears to be that tide.”

Last month, in an exclusive video interview from London, she set out to established what NFTs and what potential she views them having long term on the art market.

Tokenization simply allows individuals to purchase a contract that says an individual owns an art piece as part of a broader partnership. That ownership is verified via blockchain, which records the transaction history. Digital art gives artists a new way to sell art and as a collector one owns a JPG of the art. But those worried about authenticity and displaying of the work, the process is the same to some degree as it every was with experts still needing to chime in and do the research in certifying the artwork.

In considering that about 20% of the art in museums today is fake, according to Isingoma, the blockchain and the verification process could be additive as while it isn’t infallible it does improve on the process historically in place.

But what about as a storehouse of wealth? Could NFTs have an even broader impact?

Experts like Isingoma think so as NFTs could help art museums sell a portion of prominent collections to a wider audience and keep their doors open despite the devastating impact the pandemic has had on their bottom line perhaps only selling a certain percentage of a particular collection or artwork. She points to artists such as Damien Hirst who have been creating specific collections for NFTs in collaboration with collectors.

The NFT movement has been spearheaded by artists, but those blocking the effort seem to be the traditional art world, she said. Large collectors may want to own an entire artwork, but for those younger collectors NFTs could be an intriguing starting point. And unlike cryptocurrency, is less likely to be solely the domain of “tech bros.”

NFTs, blockchain and valuation are all under consideration for Isingoma as she looks to close her first art fund and from there spend the next two to three years building up the collection to back it. Blockchain allows for the creation of royalty rights as well that allow for living artists and later on their estates. Interestingly, Alternatives Watch has watched rising interest in music royalties among private equity investors – showcasing the growing intersection of the music, art and finance.

The Art 4 Africa Fund aims to achieve capital growth and outperformance of the art market over the investment time horizon of ten years. The fund will primarily invest in museum quality artworks by established and blue-chip African and Diaspora artists. Every artwork and artist will be methodically evaluated to consider its overall ft and impact on the portfolio and weighted according to current overall market factors and internal risk assessments.

The fund’s objective is to have a diversified portfolio with exposure to different art mediums, regions in order to minimize investment risk while at the same time exploring high value investment opportunities in the largely untapped Modern and Contemporary African & Diaspora art market.

The last 10 years has seen a significant increase in the number of art investment funds launched, according to KIISA Art. The rise has been attributed to the fact that art can typically produce returns that have little or no correlation to those of more traditional stock and bond investments.

The fund is really aimed at those who want to enjoy the potential for growth in the art market. Interestingly, KIISA Art’s investment team includes curator and art critic Alistair Hicks. Hicks was the senior curator at Deutsche Bank for 20 years, where he oversaw the company’s over 60,000 works of art in London. Deutsche Bank officially has the world’s largest collection of corporate art. He also wrote art reviews for a range of publications including The Financial Times, Frieze magazine, The Spectator and Vogue among others.

While NFTs have the power to democratize the ownership of art collections and potentially allow for greater support of museum collections, at KIISA Art there is also a commitment to support women artists, which are slated to make up roughly 50% of the fund’s underlying assets. It is unclear though going forward how much of Isingoma’s collection will be in NFT form, but the potential for further diversification in collections large and small can only be a positive outcome for the art world as a whole in addition to supporting new talent and interest.

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