Would Trustees’ Investment in High-End Art Be Consistent with Fiduciary Standards?

We’re discussing fiduciary duties for trustees in my Wills, Trusts & Estates course and perhaps that is why an article in the November- December issue of the ABA publication, Probate & Property, caught my eye.  The cover article is “Painting a Not-So-Pretty Picture: Art as an Alternative Investment in Fiduciary Accounts.”  Author Michael Duffy, from Goldman Sachs, reports on recent eye-popping headlines for auction sales of artwork.  He  discusses the sales figures against the background of fiduciaries seeking better-than-conservative returns through use of alternative investments.  He outlines the tangible and not-so-tangible variables at the heart of art investment, leading to his thesis:

“It is the position of this author, however, that trustees should not be persuaded by the seemingly lackluster performance of their traditional investments reltative to these sensational headlines and that they should ignore the steady drumbeat of savvy marketers who have a vested interest in convincing them otherwise. There are simply too many considerations when buying and selling art that call into question the prudence of any such endeavor when undertaken by a fiduciary held to the highest investment standards under the law.”

It is interesting to note that “absence of federal and state regulation” is one of the reasons for caution cited by this financial services author.