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Can these be considered investments? They do not generate regular cash flows even though they are very rare!

Jul 3, 2011
Rare violins: Sound investment?

Fund lets investors speculate on value of rare instruments - like a $2.2 million Stradivarius

Singapore - The first time Ms Satu Vanska held the Australian Chamber Orchestra's US$1.8 million (S$2.2million) Stradivarius and played the opening notes of Jean Sibelius' violin concerto, she knew she wanted it.

'The thought that it could be yours, it makes you a little nervous - and very happy,' Ms Vanska, 32, assistant leader of the Sydney-based orchestra, said in a telephone interview.

The violin, a composite of two made by Antonio Stradivari in 1728 and 1729, is the first asset of a new fund set up by the orchestra that gives investors the chance to speculate on the value of rare musical instruments.

Auction house Tarisio sold a 1721 Stradivarius called the Lady Blunt last month for a record £9.8 million (S$19million), 116 times the £84,000 it fetched at Sotheby's in 1971.

'Violins appear to be quite a good investment,' said economics professor Kathryn Graddy, of Brandeis University in Waltham, Massachusetts. 'The returns are comparable to art, lower than stock returns but slightly higher on average than bonds.

'They are, in a sense, a safe haven because the returns are steady and not as volatile as art.'

Violins made by Stradivari and his contemporary, Giuseppe 'del Gesu' Guarneri, averaged gains of 6.9per cent a year between 1980 and 2006, compared with an average advance of more than 9per cent in the S&P 500 Index and about 6.6per cent from US treasuries, Professor Graddy wrote in a study published in 2008.

The new fund is the brainchild of Mr Richard Tognetti, the orchestra's artistic director, who taught actor Russell Crowe to play the violin for the film Master And Commander.

He wanted to find a way to make some of the world's best instruments available to the orchestra, which gets most of its funding from ticket sales and sponsorship.

The minimum investment is A$50,000 (S$65,000) and the fund will terminate in 2021, when the instruments will be sold and the money disbursed, unless investors vote to extend it, the orchestra's website says.

'None of the musicians can afford to buy any of these fine instruments,' Mr Tognetti, 45, said in a telephone interview. 'Even way below a Stradivarius, you're in an amount of money that is beyond what we earn.'

Mr Tognetti plays a 1743 del Gesu called the Carrodus, valued at US$10.5million, that was bought by an anonymous benefactor for US$6.6million in 2006, according to the website.

The orchestra's new Stradivarius has 'quite a powerful sound that carries all the way to the end of the concert hall', Ms Vanska said. 'At the same time, it's very sweet and brilliant, and that's a very nice combination.'

Decreasing supply and increasing demand from markets such as Russia may accelerate the gains for fine violins, many of which are almost 300 years old, said Mr Steven Smith, a director at London-based dealer J. & A. Beare, which sold the Stradivarius to the orchestra.

'Prices are going up more steeply than they were, and I would expect that that's very likely to continue,' he said in a telephone interview. 'The supply and demand situation is getting much, much tougher.'

Stradivari and Guarneri worked in the northern Italian city of Cremona during the 17th and 18th centuries. About 650 Stradivari violins and 135 del Gesu violins survive, according to the Chicago-based Stradivari Society. That makes them increasingly valuable and relatively illiquid, Prof Graddy said.

'Compared to real estate and even art, the market for high-end violins is 'thin' and many violins are sold through dealers rather than auctions,' she wrote in the 2008 report.

The Lady Blunt auctioned last month was one of 19 Stradivarius instruments owned by the Tokyo-based Nippon Music Foundation.

The proceeds from the sale will go to the organisation's parent, the Nippon Foundation, for its Northeastern Japan Earthquake and Tsunami Relief Fund.

The Australian Chamber Orchestra, which tours Australia and performs at international venues, has raised A$1.6million so far for its fund and aims to reach as much as A$10million to buy instruments, said Ms Jessica Block, the ensemble's deputy general manager.

Investors will be able to sell units to the orchestra every three years, starting in July 2014. They can sell to other investors approved by the fund's trustees at any time. There are no fees.

'There's no point denying that there is a philanthropic element to this,' said Ms Block, a trustee of the fund.

'We need people to hold on to their units as long as possible. We needed to make it attractive enough so that

people wouldn't think it was a donation dressed up as an investment.' She declined to say how many investors the fund has.

Mr Guido Belgiorno-Nettis, chairman of the orchestra's board and joint managing director of Sydney-based Transfield Holdings, helped design the fund and also invested a sum of A$200,000 with his wife Michelle.

'It's a good place to park some cash,' Mr Belgiorno-Nettis said in a telephone interview.

'The instruments are rare and therefore it's very unlikely you're going to lose your money.'

Musicwhiz Wrote:Can these be considered investments? They do not generate regular cash flows even though they are very rare!

Technically speaking, a musical instrument is not destroyed by use. As long as it is maintained properly, it has a useful life of decades or even centuries. During this period it can be rented to professional musicians to generate cash.

The problem is usually in the yield. A $1m violin would have to rent for at least $40-50,000 to make financial sense, and this is before the cost of insurance and maintenance. Few professional musicians can afford to pay this sort of rent and still make enough to survive. Fortunately there are not many such expensive instruments, so they can indeed be rented to the very best musicians who earn the most and can therefore pay the most.

Most investment-grade musical instruments are violins. Fortunately most famous i.e. high-earning classical musicians are also violinists.

Many such violins are owned by philanthropic foundations or charities who view the instruments as a way of contributing to society, first by giving a worthy musician a tool for his craft, and secondly by allowing the public to appreciate fine music.

Because of the extreme illiquidity, tiny supply and extra work to match the instrument with a suitable musician, owning such instruments is best left to the foundations and charities. Should an individual desire to own such an instrument, he should understand that many of the returns are non-financial e.g. the musician's gratitude, the public's appreciation, enjoying the performances etc. If he is only after financial returns there are better choices out there.
Ok I am going out of point in this topic.
But my question is.. how about watches or even pianos?

Like Patek Philippe or Rolex?
Have heard that Steinway & Sons grands were cheaper in the 70s than now, even after discounting for inflation.

These things are only value for people with loads of money and nothing else better to do. Do you think a musician will pay 1m for your rare violin?

I saw this documentary on history channel about this steel magnate from Ukraine how he went from working in a steel mill in the 80's then met and teamed up with an american to invest in steel mills then the 90s began buying up old soviet steel mills including the one he previously worked in and later became a billionaire.

His favorite past time drinking very expensive whisky. He would get on his private jet and fly down to london go to a very upscale pub to drink to 50 year old scotch whiskey that can costs up to 20,000 english pounds a bottle or more.

So yes there is a market for your violin but a very very small one as billionaires with a fetish for rare violins do not grow on trees. Big Grin
I am not a violin maker, I only play.

The violin is a special instrument in the sense that no matter how skillful the luthier is (luthier is a violin maker/repairer), his greatest competitor is somebody who died >300 years ago. The reason why Strads or Quarneries are so good is until today, a myth. Scientist study the wood, the glue, the varnish (the 'paint' used to treat the wood), the construction geometry etc. They just cannot get a conclusive evidence on why the Strad/Quaneries/any good instruments made during that time - 1720-18?? sounds so good.

The mechanics which a violin makes sound is the vibrations of the strings go through the bridge, the piece of wood between the strings and the upper board, through the upper board into the body of the violin. The sound post, a piece of wood in the middle connecting the upper and lower board helps to transfer the vibrations to the lower back board. The vibrating sound comes out through 2 openings on the top, called f-holes (no puns intended). For any violin, whether it is million-dollar or China-made hundreds of dollar, the sound gets better (louder, brighter, better tonal quality) as you play more and more because the vibrations of the air makes it seasoned over the years. In fact, for expensive violins, they need to be played constantly or else the sound quality will degrade very soon. In the museums in Italy, the care takers actually take turn everyday to play each instrument for a short period of time, then continues to the next instrument.

The problem with investing in expensive violins here in Singapore, as I see it, is our high humidity 60-90% which is quite detrimental to the wood. An ideal humidity is 50% (or lower, but not so dry as to cause the wood to crack). If you ask any SSO player, he/she would most likely have 2 violins (or more). The hundreds of thousands one are for regular performance in Victoria, and other air-conditioned venues. For outdoor venues like Botanic gardens, you can expect the cheaper made-in-china one.
I "am" a violin maker & Dealer based in Singapore, with good results the past 7 years.

I read with interest the posting on rare violins as investments and feel that a few misunderstanding has to be corrected.

Investment violins is not "rented" to a musician it is "loaned". The musician is usually responsible for the insurance and the maintenance only during the loan period.

This kind of investment is a long term investment, usually from 10-20 years and the return on investment only materialize on exit, when the instrument is sold on with a profit. The profit can on the best instruments be substantial. However one must not expect to cash in overnight as a sale might take anything from month to a years to achieve.

Having said this, I believe that violins, violas, cellos and french bows is an attractive and fulfilling alternative investment form, for the right type of person. While contributing to the development of a young artist, furthering his or hers career, it also, over time generate a handsome profit, so in other words philanthropy "with a twist".

As the prices for the best instruments are soaring into the hemisphere it has become more and more popular to get together with a group of like minded investors / patrons and set up small Trusts or joint venture agreements, in order to spread both cost and risk.

I believe investing in this type of instruments and bows is a good alternative to the traditional investment tools, providing that it is only used as a derivation on an otherwise well balanced portfolio.

Happy investing,