Q&A With Managing Partners of Liquid Rarity Exchange Part 1 – artmarketblog.com
The Liquid Rarity Exchange (LRE) is a new art investment system that facilitates the securitization of investment-grade rare and precious assets – in other words, a system allowing art to be owned in fractional shares and publicly traded for the first time. Nic Forrest, Owner of the Art Market Blog, was recently afforded the opportunity to find out more about the venture from the managing partners.
Q. What is the concept behind the patented Liquid Rarity Exchange technology?
A. Liquid Rarity Exchange Patents consist of two comprehensive families of issued and pending “core” patents. Liquid Rarity Exchange (LRE) was the first to patent the methods and systems required to launch public offerings backed by tangible assets. At the time of filing in 2006, no prior art existed in this area.
The first IP family of claims, description and embodiments are based on the public offerings of tangible asset backed securities, i.e. “Rarity Funds”.
[The following bullets represent a basic summary of LRE’s main issued patent. The information presented here is not intended to limit or otherwise alter the scope of LRE claimed subject matter and intellectual property. No warranty of any kind, implied, express or statutory is given in conjunction with such information, the veracity, accuracy, adequacy, completeness or reasonableness thereof. Nor is the absence of any information in this summery intended to limit or alter the scope of LRE claimed subject matter and intellectual property.]
- All types of public securities i.e., (mutual funds, UIT, stocks, bonds, ETF’s etc.) which best match each rarity (tangible and intangible) classification i.e., (Fine art, ancient coins, classic cars, rare string instruments, entertainment and sports memorabilia, music and film rights, rare autographs and documents etc.)
- Upon public offering, liquidity is achieved through the fungible shares and market driven valuation. At the same time, the public is provided information on the fund value backed by appraisal, purchase and sale data.
- A dynamic management and control system, network and database for fund managers, rarity experts, and investors in which transparency and full disclosure is achieved. Tools are provided to aid experts and managers in valuation and authentication, title transfer, insurance, real-time tangible asset tracking and environmental monitoring, and controls and resources to assist fund managers in the buying and selling of fund assets according to each asset’s individual strategy.
Q. What prompted the creation of the Liquid Rarity Exchange?
A.We recognized the benefits of the rarity sector as a low-correlating asset class, and identified several barriers to entry for investors:
-The high price and illiquid nature of the items
-The exclusive, elite, and private environment in which items are typically bought and sold
-The lack of transparency, risk of fraud, etc.
Our objectives are:
1. To provide the intellectual property and technology to serve as a foundation for the establishment of a new Rarity Investment Sector.
2. To make an affordable investment alternative available to a wider market of investors by removing barriers to entry.
3. To create liquidity from the secondary market after LRE’s Rarity Fund’s public offering.
4. To provide greater disclosure and transparency through SEC registration.
5. To offer new technology for rarity asset safety (environmental monitoring, global tracking, and advanced system of alerts).
Q. How will the Liquid Rarity Exchange function?
A. LRE is not a formal exchange such as the New York Stock exchange. All the LRE products are designed for the public and will operate on existing exchanges.
Q. What makes the Liquid Rarity Exchange different to other art investment products?
- Art investments are in the form of private funds, thus lacking a secondary market (liquidity), transparency and disclosure compared to public funds.
- The majority of art investments are fine art oriented – The Liquid Rarity Investment Sector is broad in nature and diversified. Fine art is one of fourteen classifications that don’t necessarily correlate with each other and react to financial markets in a unique way. Ancient coins have a different beta than classic cars and fine art and rare string instruments for example. The LRE Funds combine several categories of rarities such as art, cars, wine, jewelry and gems and stringed instruments.
- Diversification within the rarity fund is a key component. For example, A LRE Fund would be less liquid if only investing in Stradivarius violins – however, if the fund also includes, bows, harps, violas, cellos and international rare string instruments, the fund become more liquid as each item has its own distinct and independent strategy.
- The publicly offered tangible funds that exist outside the United States are very different than LRE. A LRE Fund is structured as a pool of assets in which shares are traded backed by the value of the entire diversified portfolio of assets. In contrast to LRE, the foreign publicly traded tangible asset funds sell shares of an individual asset which makes an already illiquid asset harder to sell.
**Nicholas Forrest is a Sydney/London based art market analyst, art consultant and writer. He is the founder of the Art Market Blog (artmarketblog.com) which offers independent commentaries as well as research and analysis on the current art market, and has recently been published in Fabrik magazine, Verve magazine, Visual Art Beat magazine, Australian Art Collector magazine, Art & Investment magazine and many others. Nic has made several radio appearances (both nationally and internationally) as an art market expert and has received press from the likes of the New York Times, Conde Nast Portfolio and Times of London.
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