Elizabeth Pitcairn, like a number of world-class violinists, owns her own instrument—one that cost $2 million when her grandfather bought it 23 years ago. But she’s among a dwindling group of professional performers who can. The prices for fine instruments have accelerated out of the reach of even highly compensated concert artists.
But this pricing trend has amounted to sweet music for another group: Diehard violin collectors and investors. Indeed, many artists are playing on instruments lent to them by wealthy collectors or foundations.
“[Musicians’] salaries are so low, and the price of instruments so high, they’ve skyrocketed out of sight, says Christophe Landon, a prominent violin maker in New York City.
Make no mistake—violins, especially the rarest instruments, are investments for the wealthy. Early 18th century instruments by the likes of Stradivarius and Guarneri have been prized assets for centuries. Investing in violins gained even more traction after the 2008 financial crisis, when high-net-worth investors increasingly turned to collectibles as an alternative way to diversify their portfolios.
A $2 Million Stradivarius
Pitcairn comes from a musical family. Her mother is a Juilliard-trained cellist and her father is a baritone opera singer, past president of the Opera Company of Philadelphia and the vice president of the Academy of Vocal Arts. In 1990, when it was clear that Pitcairn was on her way to a major career, her grandfather paid some $2 million to buy her the “Red Mendelssohn” Stradivarius of 1720, which she has since used on concert stages around the world. Pitcairn says that if the Red Mendelssohn were put on the market today, it would fetch one of the highest prices ever paid for a rare violin.
That’s a lot of money. In 2011, the Nippon Music Foundation in Tokyo sold its prized “Lady Blunt” Stradivarius for $15.9 million, a record at the time. When Lady Blunt first went on the auction block in 1971, it sold for $200,000 ($1.2 million in 2013 dollars)—a return of 12% to 13% per annum, according to Bloomberg News.
In recent years, price increases have elevated violins to a new level of value. A Stradivarius that could be bought for less than $300,000 in the late 1970s today would start in the millions, according to accounting and advisory firm Grant Thornton.
Artists who used to be able to buy their own violins and pay them off in a few years now depend on wealthy benefactors and foundations for use of fine instruments.
Take violinist Anne Akiko Meyers. Earlier this year she was awarded lifetime use of a Guarneri del Gesù from 1741 that had been previously owned by Henri Vieuxtemps, a 19th century Belgian concert violinist and composer. The new owner, who remains anonymous, bought the Vieuxtemps del Gesù in 2010 for an undisclosed sum; it had been offered for an asking price of $18 million.
Several years ago, all name violins tended to go up in price together, according to Landon. Now a few renowned violins are skyrocketing in price, opening a wide gap between famous names and lesser-known ones. “Investors want great names,” says Landon.
Demand for fine violins outstrips supply. Much of the demand comes from Asia, where world-class musicians in Japan, South Korea and increasingly China are seeking out the finest instruments, while those whose careers are just beginning buy their violins from fine local violin makers. Institutions, too, buy instruments for favored musicians and national orchestras. Among them are the Nationaal Muziekinstrumentenfonds in the Netherlands, OKO Bank in Finland, the Chi Mei Culture Foundation in Taiwan and the Australian Chamber Orchestra Instrument Fund. These purchases are unlikely ever to go back on the market, further constraining supply.
Groups of individual investors, mainly in Europe, buy and make instruments available to musicians. “In the U.K. and Ireland, these are typically built around private syndicates sponsoring a specific musician via a fine instrument,” says Kerry Keane, global specialist head of musical instruments at Christie’s. “The model is not unlike the group ownership of a racehorse.”
Investment With Passion
Unlike wine or other collectibles that come in multiples, violins cannot be commoditized, Keane notes. A rare violin is different because of its “synergy” under the fingers of a great musician. “Without that, you’re just dealing with a sculpture that looks like a violin,” he says. Indeed, a world-class performer’s association with an instrument can significantly increase its value.
The value of a superior violin, or any fine collectible, depends on six factors, says Keane. Its attribution—who made it—has to be uncontested. It must be of impeccable quality, meaning it must have superb tone and workmanship. It must also be in pristine condition; if it needs any repair, such as a replacement of varnish, its value can be diminished. Provenance, who previously owned it, is also key, demonstrated if possible by a detailed paper trail. A violin that’s fresh to the market also gets a boost in value because it creates excitement—especially now that violin collecting is in fashion.
Many investors in rare violins are music lovers and amateur musicians. They buy top-quality instruments for their beauty and the sound they produce. Sometimes they co-own them with a musician. Others buy a violin outright or with co-investors and lend it to a fledgling or established professional player who cannot afford to buy it.
Keane says that in all his years in the business, “I’ve never known investors, only buyers with a deeper passion. It’s never a pure investment.”
Still, it is an investment, and a good way to hedge against inflation. Research by Brandeis University economist Kathryn Graddy shows that auctioned violins have returned an inflation-adjusted average of 3.3% per annum since 1980. The research also shows that violins do not track market swings, so they are good investment diversifiers.
Auctions And Private Sales
Investors can buy violins in auctions and through private sales. Tony Finley, a principal at the Artist Rare Instrument Fund, says that as violin investing has become global, the finest instruments generally don’t go on the auction block. They are sold in private transactions. These can involve hefty commissions to broker-dealers, though the best-connected participants in this refined arena can work out deals. For anyone who isn’t a part of this rarified world, obtaining expert advice on potential purchases is essential. Finley notes that the world is afloat with copies of Stradivari instruments, for example, and the market for fake certificates is flourishing.
Top auction houses—such as Christie’s, Sotheby’s and Bonhams—remove this worry. They provide deep expertise, and information on provenance, attribution and condition, says Keane. He says auction houses have raised disclosures to a high level, ensuring that accurate information about instruments is available to potential buyers, and this has influenced the private sector to be more transparent.
Of course, costs will be incurred in any sale: the sales cost; insurance; capital gains, which are different from that of stocks and bonds, in that a violin is real property; and upkeep and storage.
Tarisio, an online auctioneer and relative newcomer to the market, achieved a coup when Nippon needed to sell Lady Blunt quickly in 2011 to raise money for earthquake/tsunami relief and chose Tarisio. “The Nippon Foundation came to us wanting quick action and a very dynamic and far-reaching sale, and of course a high result,” says Jason Price, a director.
Fund ‘Instruments’
The Artist Rare Instrument Fund allows investors who want to avoid the auction route and may not be able to compete in the private market to invest in violins. The fund is raising $100 million, targeting high-net-worth individuals who are looking for a way to hedge their portfolios, family offices that are also looking for “a hedge with some sizzle” and smaller pension funds, according to Finley.
He says the fund will buy instruments for different holding periods. About 20% to 30% of the inventory will be instruments in the area of $1 million that can be sold in a matter of weeks. A second category will include more expensive instruments, in the $3 million to $4 million range, that may be held for two to 10 years or longer. While these are appreciating in value, they will be lent out to performers. The fund may also consider violins valued at less than $1 million that show great promise.
The fund has a five-year lockup, and limits investments to $1 million to $10 million. Finley says investors are encouraged to make only small allocations, as the fund wants to ensure orderly liquidations and not be hit with a large redemption request that could force it to sell an instrument whose value is still appreciating. He says the fund will be 6% in cash or liquid instruments at all times.
Investors can expect an 8% annual rate of return, according to the fund. Finley says this is higher than Graddy’s long-term average annual return of 3.3%, but is reasonable because the fund is cherry-picking instruments, “scooping up the cream of the crop.” The fund strives to authenticate every instrument beyond any doubt before purchase, and will buy only those in pristine condition. “We’re trustees for our investors, and want to make sure their money is being put to best use,” he says.
Landon—considered to be among the world’s finest contemporary violin makers—is a principal in the fund and will lend his expertise to ensure violin quality and global connections with dealers, artists and collectors to source potential investments, Finley says.
Besides lending fine violins to performing artists, the fund can help older artists monetize their own instruments as retirement approaches by sharing the capital gain or providing an annuity and allowing the owner to continue using the instrument.
