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A sound investment

Jonathan Moulds, the boss of Bank of America/Merrill Lynch’s business in Europe, knows his violins. Stradivarius Jonty, as his colleagues know him, has one of the most famed collections of antique violins in the world, including three of possibly the best examples of Stradivarius ever made as well as an equally fine example of a Guarneri violin.

Moulds, an accomplished violinist who has played with the London Symphony Orchestra, has no doubt of the investment value of his collection. “They’ve been a spectacularly good investment,” he says. “My violins have tripled in value every fifteen years, and I expect they will continue to outperform with growing demand from Asia.”

The Bank of America/Merrill Lynch banker might have picked one of the most valuable musical instruments to collect, but returns being made for a whole host of musical instruments is enticing many investors and encouraging an increasingly active secondary market in the dealing of these instruments.

Indeed, those lucky enough to have a collection of guitars with an impressive provenance attached to them are potentially looking at some spectacular returns. Anchorage Capital Partners, an investment manager that runs a guitar fund, says vintage guitars have delivered an average annual return of more than 20% over the last 20 years.

Price records on the private and public markets are being smashed every year. Experts say very good examples of violins made by Stradivari or Joseph Guarneri del Gesù – considered the best luthiers of all time – have sold privately for more than $10 million. Last summer, a Vieuxtemps, a 1741 Guarneri violin went on sale for $18 million through Chicago dealer Bein & Fushi.

So far no one has been willing to pay that price, but Bein & Fushi is confident a price around that level will be achieved – if so, it will be the most expensive musical instrument ever sold.

At Christie’s fine musical instrument auction in New York last April, 10 new world price records were set. Ninety seven per cent of the lots sold by value, including a viola by Gasparo Bertolotti da Saló, a violin by Carlo Giuseppe Testore, and a violin bow by François Peccatte.

The 1845 bow alone– just the wood, not the hair –fetched nearly $50,000, triple its estimate. Superstar provenance can increase value by many times.

In 2004, Eric Clapton’s Fender Stratocaster guitar became the most expensive guitar to sell at auction, fetching £527,000 at Christie’s in New York.

These extraordinary price tags might seem justifiable on a work of art, which always serves its purpose: to be looked at. But many vintage instruments are treated in the same way as art, sat on display in a case. The world famous Messiah – a 1716 Stradivarius bequeathed to the Ashmolean Museum in Oxford, can never be played as a condition in the will of its former owner.

Reportedly worth more than $35 million – the violin is in perfect condition – but has been silent for decades. If instruments are being unused, sceptics might question how they can attract such high values.

Tommy Byrne, chief executive at Anchorage and chief investment officer of The Guitar Fund, reckons that the asset class attracts high prices because there is a dwindling supply available as demand grows. Prices have been rising steadily for the last 40 years.

“Wooden stringed instruments like violins, cellos and guitars, improve over years from the vibrations of strumming and bowing, the sound becomes warmer and each one develops its own individual sound and feel,” he says.

Modern technology has not been able to replicate the maturing of a stringed instrument, says Byrne, which keeps demand for three hundred year old violins strong. Tim Ingles, head of musical instruments at auction house Sotheby’s agrees that time allows a stringed instrument to mature.

“Last year we had a beautiful Guarneri come our way that had not been touched for fifty years. It sounded dead – there is no other way to describe it. But within three months of my colleague playing it regularly, it was making the most beautiful sound you have ever heard,” says Ingles.

The notion that stringed instruments improve with playing is widely held. That they should be played, once acquired, is disputed. “I rarely play my violins,” says Moulds. He keeps most of his collection locked away in a safe. Nevertheless, he does lend them out from time to time, including to the glamorous young Scottish violinist Nicola Benedetti, who played Moulds’ 1723 Earl Spencer Stradivarius at last year’s London Proms. “The vicarious pleasure you gain when hearing a brilliant star play your violin, is immeasurable,” says Moulds.

Many, like Moulds, cite the philanthropic value of loaning their instruments. Norwegian cellist Øystein Birkeland has benefited first hand from the generosity of DnB NOR, Norway’s largest bank, which have sponsored him for two decades.

His cello, a Francesco Ruggieri, was purchased for him on loan in 1989. “As a musician you cannot afford the best instruments. You need a patron, and I was one of few lucky enough to attract one,” says Birkeland.

He approached the bank six years ago with the idea of setting up a foundation to invest in fine instruments, and loan them to Norway’s top performers. The bank, assured in the investment potential, granted him an initial funding worth around $15 million.

“The first acquisition we made was truly spectacular - the ‘Kreisler’ Bergonzi violin of 1735,” says Birkeland. He added that the bank employed specialist dealers to source undervalued instruments. “The Bergonzi was bought at a good price, as was the Guadagnini viola of 1781, which is now played by the Vertavo Quartet’s Henninge Landaas, which had been on the market for several years.”

Some musicians are lucky enough to own very valuable instruments. Julian Lloyd-Webber, described as the “doyen of British cellists” and younger brother of composer Andrew, owns – and plays – the ‘Barjansky’ Stradivarius cello, which is more than 300 years old.

He bought it at auction in 1983 but he says the purchase was not initially for investment purposes. “I have played it for nearly thirty years now – it is ‘my sound’ and we have shared some fantastic moments together,” he says.

“However, I know that it has increased hugely in value since 1983. This level of instrument is in very short supply and they will always hold and increase their value. If the market dips in the West there will always be buyers in the East – and you can’t say that about property!”

Musical instrument investment is not something to be taken lightly. Careful research is required. Although fraud is rare, say Ingles, misattribution is common. “There are an enormous amount of mislabelled instruments, particularly from Eastern Europe. But to the trained eye the grain lines, the varnish and the workmanship give clues about an instrument’s chronology,” he says.

Maintenance of three hundred-year old objects is neither easy nor cheap. Annual insurance for a $1 million-plus instrument is at least $4,000, which covers being flown to concerts all over the world, says Julia Coakley, divisional director at Lark Insurance Broking Group.

She added: “Instruments are very delicate, and should be kept from extremes of temperature and light, as it can cause the wood to expand or contract. An instrument should be kept in a hard protective case, and locked away in a cupboard even whilst being stored at home.” She pointed to a theft of a $1.5 million Stradivarius from London’s Euston Station last year, which remains unsolved. Fees on buying and selling instruments are high. Ten per cent commission for a privately brokered sale is common, said Ingles.

Critics of musical instruments as an asset class say there are two
main problems. The lack of liquidity makes it almost impossible to arrange a quick sale. The main auction houses Sotheby’s, Christie’s and Bonham’s hold auctions only twice a year and the finest instruments surface rarely.

This compares with at least thirty big annual art sales, says Christie’s New York based head of musical instruments, Kerry Keane. Christie’s fine musical instrument sales in 2010 raised $3.7 million, $1 million less than the previous year, while lots offered were down by a third to 325. “This was mainly due to people choosing not to sell at the current time. There are very few forced sellers in this market,” he says.

The second drawback is the high entry level to buy investment grade instruments. A good modern Italian violin will set you back around $15,000, said Ingles. A standard dealer’s fee of 10% or an auction house levy of as high as 25%, and it is a substantial investment that has often been only the preserve of the very rich.

But the niche is quickly being filled – by musical instrument investment syndicates and funds, like that run by Anchorage.

According to Allianz Musical Insurance, there is an increasing trend of investors joining to form syndicates that pool assets in order to buy rare instruments. Syndicates then loan out their investment to up-and-coming musicians, in the hope of furthering their musical careers and enhancing the value of the instrument in the process.

AMI worked with Emotional Assets Management and Research, an investment advisory boutique, on a report in 2009, which showed that fine musical investment funds are returning between 8% and 12% a year.

Bernard Duffy, managing director of EAMR which invests in antique instruments as well as jewellery, art and memorabilia, says: “We are seeing more and more high net investors, their advisors and family offices look to musical investments as long-term stores of value, as well as other emotional assets.”

He adds: “We believe that the worlds of collecting and investing are converging and this phenomenon will attract more investors into this space. This will mean more fine and rare musical instrument investment funds, which are likely to lead to continued price escalation of these instruments over the medium to long-term.”

Growing demand for fine instruments from the expanding pool of wealthy Asian collectors is likely to stoke prices further. Sotheby’s and Christie’s plan fine instrument auctions in Asia this year. “In Asia, the Japanese are currently the keenest collectors, but we expect increasing demand from China,” says Ingles. “We hear estimates that there are 10 million Chinese learning to play the violin. That alone will keep the market booming for many years to come.”

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