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Bankrate.com
The art of=20 retirement
Tuesday May 8, 6:00 am = ET=20
Cliff Bowden=20

Through much of their careers, most artists are = so busy=20 simply surviving that planning for retirement isn't even in the = picture.=20 The odd jobs that allow enough free time to pursue their passions = don't=20 usually offer a pension plan.

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Artist Pension Trust (APT), = an=20 investment program managed by an outfit called MutualArt, gives visual = artists an=20 opportunity to invest art rather than cash for their golden years.

Here's how it works: Participating artists are asked to place = 20 works=20 with the trust over the course of 20 years so that the pieces can = be sold=20 when returns look the most promising. Then 40 percent of the = proceeds go=20 into an artist's private retirement account, another 32 percent is = divvied=20 up among all the trust's artists, and 28 percent goes to MutualArt = itself,=20 to cover all management and operating costs.

Trust founders project payouts for individual artists from = $500,000 to=20 $1.5 million. That estimate is based on the fund's projected = overall value=20 and the proportionate worth of each artist's work.

APT is still too new to have been subjected to any real market = tests,=20 but artists like the idea.

A mix of capitalism and socialism
Katie Grinnan is a = sculptor=20 who lives in Los Angeles. Making ends meet is a challenge.

"I barely make a living so far," she admits. "I teach = sometimes, and=20 every so often I make some money off my work. I'm still emerging, = but I=20 feel like I'm on the cusp."

Grinnan's situation, she says, is like many artists she has = come to=20 know in her budding career.

"I'm typical in that respect," she says.

Under her prevailing circumstances, Grinnan has little time to = consider=20 the future and what might await her when she reaches the age of=20 retirement.

Grinnan joined the Artist Pension Trust three years ago when it = was in=20 its infancy.

"I know a lot of people in the trust, and that's a good thing, = too. It=20 feels nice. It seems like a weird mix of capitalism and socialism, = and I=20 was attracted to that in some way."

She says she was also fascinated by its communality.

"It seemed like a way that one artist could help other = artists," she=20 says. "I also liked that it's a pension plan. It's rare that art = is valued=20 that way. So I approach it as a new and exciting concept, an = experiment."

The selection process
APT CEO & President Bijan = Khezri=20 says about 500 artists, of which about half are U.S. citizens, are = currently enrolled in the program. Originally, he says, regional=20 curatorial committees invited artists to participate, but = networking among=20 artists has resulted in an increase in the number applying without = invitation.

The APT, which plans to operate in more than 30 countries = worldwide, is=20 meanwhile divided into seven regional groups that will be capped = at 250=20 artists each. The U.S. is divided into two regions, based in New = York and=20 Los Angeles. The other five are in Beijing, Berlin, London, Mexico = City=20 and Mumbai.

"The program is perceived as very selective, and rightly so," = says=20 Khezri. "It will remain fairly small."

The New York artists' trust, he says, was launched in the = waning months=20 of 2004 and will likely reach capacity in 2008 or the beginning of = 2009.=20 "Then we will most likely start another one there."

Criteria for selection into the pension trust depends to an = extent on=20 judgments made by members of regional committees, Khezri says. = "Some who=20 are with us are well-established, and some just emerging. In the = U.S., we=20 tend to produce professional artists in schools. In Europe, that's = not=20 necessarily the case. So U.S. committee members go quite = frequently to the=20 schools to recruit."

He admits this practice can be dicey.

"Obviously you assume a much bigger risk when you do that. You = have to=20 use your judgment. You end up making judgments on their ability to = market=20 themselves as well as the quality of their work."

Art riskier than stocks
The marketability of the idea = remains=20 speculative. Artists who agree to take part in the program must = sign a=20 13-page artist participation agreement, Khezri says, that names = the artist=20 sole owner of his or her works until they're sold. To date, he = says, no=20 works have been sold. "We will not sell any work in a fund until = it's=20 closed."

As a modus operandi, he says trust officials have set a goal to = become=20 the "best friends" of participating artists.

"We want to foster their careers and make sure that we strike = the right=20 balance between the right buyer -- not a spec buyer but a = long-term=20 quality buyer -- and achieving a good price. We would certainly = approach=20 the primary gallery dealers who represent them, but if they have = no=20 interest or don't want to meet the price we feel the artist has = achieved,=20 we could turn to the auction houses or other potential buyers."

Holding the artwork isn't a bad idea because the longer a work = of art=20 is held, the more the risk is mitigated, says Michael Moses, a = professor=20 at New York University's Stern School of Business who, with Stern = School=20 Professor Jianping Mei, co-developed an art index that can be used = to=20 determine the value of a work over time.

"Our studies," Moses says, "show that the longer you hold an = object,=20 the lower the risk."

The Mei = Moses Fine Art=20 Index, which uses the same methodology as the Standard & = Poor-Case=20 Shiller home price indices, analyzes the art auction market, Moses = says,=20 because auctions are the only place where prices are transparent = and there=20 are repeated sales of the same object.

Depending on the time involved, Moses says, investing in art = brings=20 returns similar to stocks. "It's riskier, but there's some = correlation of=20 art with stocks, so the index may be useful in making portfolio = allocation=20 decisions."

Since 32 percent of every sale will go into a pool in which all = artists=20 participate, Khezri says, everyone in the trust will have an = interest in=20 seeing returns grow as large as possible for each work sold.

"That," he says, "is where risk diversification comes in. = Quality is=20 very important. We have reserved the right of refusal. At the end = of the=20 day we have to be trusted by the other 249 artists in the fund = that we're=20 not going to make a crappy investment."

Organizers get a big cut
MutualArt, as the holding = company,=20 fully owns APT. While the 28 percent taken by MutualArt sounds = like a huge=20 slice of the pie, Khezri says the overhead justifies it.

"APT is not a fund in a proper sense," he says. "We finance = upfront for=20 as long as it may take, and we may not sell a work for some time.=20 Investors are taking on a fairly substantial risk because there's = no=20 certainty as to when the fund will flow or how much is going to be = left=20 over after we have paid for all expenses."

While the pension trusts' original guidelines charge selection=20 committees with "carefully storing these artworks" until they're = sold,=20 much more than that has to be done with them.

"We fund all the storage, conservation, transit costs and = overhead for=20 managing the company," Khezri says. "Exhibiting and promoting the = artworks=20 is very important. We have a very significant lending program so = that each=20 work will get shown to as broad and diversified an audience as = possible."

Khezri says APT is not really a pension fund but a long-term = investment=20 planning tool that allows participants to share in the commercial = success=20 of 249 other artists at the same time. "It's an investment program = you can=20 join without having to come up with the cash."

A legal challenge
There are still some legal issues = to be=20 ironed out, says Howard Pianko, a lawyer with the firm Epstein = Becker=20 & Green who represents MutualArt, APT's parent company.

The IRS doesn't allow a profit-sharing plan with individual = accounts to=20 hold collectibles. But Pianko says investors don't hold specific = works of=20 art, which would be classified as collectibles, but interests in = the=20 partnership, which would instead be securities, "like stocks or = mutual=20 shares."

The IRS has so far not responded, but the lawyer says that if = it=20 concurs, he will then advise MutualArt to register the partnership = interests with the Securities & Exchange Commission.

Khezri says a patent is pending on the APT concept, which could = be=20 extended to other fields, such as music and writing.

For Katie, the APT offers a modest amount of reassurance, she = says, and=20 something is better than nothing.

"I will think more about retirement later, probably," Katie = says, "but=20 it's nice to have something like this in place."

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