Wednesday, 18 July 2012

Guaranteed 9% return? Something doesnt smell right...

[Note to readers 8 Nov 12: It took me several months but I have finally tracked down how this investment works.  You can see a post on it here

I have received lots of positive messages on my post which looked into a scam related to collectible coins.  Another pretty bad / misleading advertising campaign I saw was related to  an advertisement I received from hotcopper.  Upfront I will say that this case does not appear as bad as the Macquarie Mint collectible coins case.

The email from hotcopper offered a 'guaranteed income of 9% per annum' through a company called Collins & Kent International.  You can see the advertisement here.

The advertisement set of several warning lights including:
  • The word 'guaranteed' plastered all over advertisements are never a good thing.  The first and most basic issue is is who is guaranteeing the return?  If  it is the company offering you the services then the guarantee is only as good as their credit rating.  I will go through this point in more detail later on

  • Ambiguous and misleading language
    • The advertisement has a section that says  "Fact.  Over 10 years a CKI Investment into art can significantly outperform the ASX"
      • This is misleading because it uses the word 'fact' and then gives a nothing statement.  Obviously it can outperform the ASX over any given period.  Cash under your mattress can outperform the ASX as can interest in a bank account and investments in pork belly futures
    • Also they offer a $500 Collins & Kent International Fine Art Investment Voucher.  I have never heard of an investment voucher.  The concept of one doesn't make a whole lot of sense - are they giving you money to invest in the fund? Or are they giving you a voucher which allows you to buy informational products they sell?

  • Claims that art is a 'recognised' element of a successful portfolio
    • While I have no doubt that there are some authors who claim that art can be a good diversification tool (like precious metals and other collectibles) I wonder about their use of the phrase 'recognised element'.  If you claimed that about mainstream investments such as stocks, bonds and property I would have no problem accepting this but I would not put art in the same category.

  • Also claims that it 'enriches' your portfolio. 
    • That is honestly the first time I have seen the word 'enriches' used to describe an asset going into your portfolio.  More common words and phrases used are diversifies, diversification benefits, provides growth options and potential.  Perhaps enriches is trying to capture something of the 'art' nature of this investment

  • Limited information on how the scheme actually works
    • I actually spent a fair while searching for how the investment actually worked.  Legitimate investments generally have all the information up front so investors can decide if this is a product that is good for them.  I still don't have a clear idea after searching for ~2 - 3 hours (honestly the longest time I've ever spent researching one particular post)
    • This is the information they give on how it works:
      • That is nowhere near sufficient to provide an investor certainty around the way in which the scheme works.  It does make the investment seem like the first option below though (a simple loan to the company)

  • Provides useless information and leaves out important information: 
    • Useless information provided about the company is that Collins & Kent International deals in works relating to the Masters such as Picasso, Chagall, Miro and Rembrandt.  It makes you think you are actually buying the paintings.
    • Useful information about the company you are lending to would say that they are primarily an art leasing business (from what I could find) and they lease artworks to businesses for a cost (presumably the rent you are getting)

So what are you actually investing in?
As I said above I had real trouble working out this question.  There are several possibilities which would have been nice for them to set out
  • Most likely - you are lending money to them so they can buy artwork:  It is therefore just a simple fixed interest security instrument with little to do with art (other than this is the underlying nature of the business).  9% is a pretty high return for a fixed instrument but not so high when you consider you are lending to a private organisation that may have debt holders higher than you in the pecking order. 
    • You may  get some security over the artwork but if you don't then you are in real trouble - if they should fail then there is nothing 'guaranteeing' your income each year. 
    • If this is the investment this means that Collins & Kent International would need to earn a greater than 9% return on their art leasing business just to pay you your 'guaranteed' return. 
    • The concept of 'guaranteeing income' is still troubling me - banks don't guarantee your income when you lend to them.  They just promise to pay and you are taking the risk that they fail.  The word guarantee is misleading 

  • Another option - you are buying into an art fund:  It may be that they are trying to set up an 'art fund' where you buy into a collection of works and then receive income from the customers they rent the art to.  You get the capital appreciation of the art and the guaranteed income. 
    • If this is the case they really should just say it as it.  Given their emphasis is on the income return I don't think this is the case however this page  sends a completely different signal.
    • Note that I have massive issues with that page as well.  Those are paintings that have been offered for sale by Collins & Kent International but they do not say whether this was  regular auction process or whether this was to investors in a presumed fund. 
    • Also they talk about the returns on those assets between the 1970s and the early 2000s.  It cannot be Collins & Kent International who got those returns because they were only founded in 1999 (see here)
    • However in a case like this I don't understand how they can guarantee an income return.  Further given they are talking about being specialists in Masters' works - I don't know how many organisations can afford to rent a Master at 9% of the cost
    • Also how does Collins & Kent International make their return? 
      • Do they do it through fees?  If so are the fees reasonable? 
      • Are they selling you work they have in their collection?  If so are they independently valued or are you getting an overpriced investment
Other things don't add up
There are other things that don't really make sense
  • They talk about selling artwork through Collins & Kent International (see link above) however I could not find a recent gallery of theirs online.  I found old art news online relating to a gallery they used to have in Sydney.  This could just be bad advertising and their office on Collins Street in Melbourne may have a gallery
  • Their rentals business is the one most prominently displayed on their website but even that seems weird
    • Their main page here says "Rent the finest European artworks" and "prices start from less than US$3 per day".  I'm pretty sure that those to are uncorrelated statements but I'm happy to rent a Picasso for $1,000 a year if anyone is offering?
    • It also made me wonder how you can get a 9% return of art being rented for $3 per day (because if you think about it Collins & Kent International need to make their return on top of this)

This case was one where there were a whole bunch of problems that did not add up.  I am not saying they are doing anything dodgy - they could just be terrible marketers of a great idea BUT I am not going to spend the time coaxing this idea out of them and the lack of clarity and ambiguous statements right through their advertising really put me off.

Did you consider investing in this?  Has anyone spoken to them - I would love to hear about it.

[Note to readers: 8 Nov 12: If you have read this far you have seen my criticisms and guesses as to what this investment entails.  Several months after posting it I finally discovered it - see the post here]


  1. I've spoken to them about this, you buy the art work which is already leased at 12% annually and you receive 7.5%. The painting is entirely yours. I am still considering this investment but doing a little research first. It would be great to hear from others if they have had any dealings with them.

    1. A 7.5%, while still high, is much more in line with typical guaranteed returns on the market. I am interested in where the 9% number comes from.

      Also much of my post was questioning the guarantee. If you own the underlying art how on earth do they guarantee a return? If you have any materials which are non confidential I would love to see them.

      You can email me at 90millionblogger at

  2. I have received several emails about this investment and I should add publicly (though I think it was pretty obvious from my post) that I have no special or inside knowledge about this investment.

    My greatest crticism is how opaque the investment is - to the extent that I was left guessing the fundamental structure of the investment.

  3. Thank you to one of my readers who finally demystified this investment by sending me through the contracts. You can see a summary here:

  4. I was contacted and promised 10% on the rental of an 18k Picasso print. I did a bit of research and found the same print from a Galerie Mourlot the same printer they named. They had the same print for just under 4k. CKI said it was worth more as it was and artist print. A bit more research and I found that an artist print is a copy the artist makes before the main printing to check the print. The printer also usually makes a print to check that it is OK. So either print could be called artist/printer print and sometimes these can number over 30 until they get it right. The print Mourlot was selling was called a printers print and was signed. After that I asked CKI how they proved the print was an artist print and how would I be able to prove it if I later wanted to sell it. After that query they never contacted me again. The print in question was "A los Toros, The Picador II 1961" They later made 150 prints then printed a book with it and 3 other picador prints with 2000 copies.

    1. Hi Halidom - it is interesting to hear your first hand experience. I confess I have not looked into it with as much detail as you have however one of the big risks with an investment such as this is the risk that an investor overpays for a product while only thinking about the yield that they are receiving on that product.

      The more I research it the more I realise how complex art investment actually is. For all the readers out there - if you do not truly understand all the risks associated with an investment in art (including the risk of forgery, the difference between unsigned and signed works, the difference between prints and pieces for books etc) then think very carefully about investing in it.

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    1. I have clearly been too hasty in my conclusions previously published. I retract those statements which were based on inaccurate valuations. Fair value is close to what I paid for it.

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    1. Per your request I have removed all of your posts related to this post.

      I have left this particular post as it contains your apology. If you would like it removed please let me know

    2. dear 90 million for the benefit of all concerned please delete all references to spencer farid

      many thanks and apologies to you for any problems caused

  9. 1. Source artworks;
    2. Agree on a wholesale price;
    3. Mark up the artwork from 100% to 350% or even more; that should cover the rental guranteee, salesman commissions; insurance, etc and stll generate a hnadsome profit forthe art dealer;
    4. Spin a good tale;
    5. Sell it.

    1. That's the conclusion I came to in the end as well...

  10. Sorry typo but you get the picture ...

  11. Well having reviewed all of the comments, I have a update. CKI (Hong Kong) have gone out of business and have failed tohonourthe 7.5% rental returns. All of the artwork has been held in secure storage inHK, some of it since it arrived in HK. It was never displayed in commercial premises and most were not framed as promised. The cost of storage and shipping now sits squarely with the clients. The expression Pomzi scheme foes spring to mind, although I do not have verifiable proof at this time. Please get this out there, donor touch CKI with a barge pole. Oh and to cap it all CKI Australia have been very quick to claim they have no liability and all websites in HK are still active.

  12. We are looking for anyone who can provide info about Mr Michael Donnan (Collins & Kent International & Art Vantage) his location, current employment, contact phone numbers & address.