Art in investment portfolios

This material has been prepared by INKOM Wealth Management, Altruist Global Private Equity and/or its affiliates on the basis of publicly available information, internally developed data and other third party sources believed to be reliable. INKOM Wealth Management, Altruist Global Private Equity and/or its affiliates has not sought to independently verify information obtained from public and third party sources and makes no representations or warranties as to accuracy, completeness or reliability of such information. All opinions and views constitute judgments as of the date of writing without regard to the date on which the reader may receive or access the information, and are subject to change at any time without notice and with no obligation to update. This material is for informational and illustrative purposes only and is intended solely for the information of those to whom it is distributed by INKOM Wealth Management, Altruist Global Private Equity and/or its affiliates. No part of this material may be reproduced or retransmitted in any manner without the prior written permission of INKOM Wealth Management, Altruist Global Private Equity and/or its affiliates. INKOM Wealth Management, Altruist Global Private Equity and/or its affiliates does not represent, warrant or guarantee that this information is suitable for any purpose and it should not be used as a basis for investment decisions. This material does not purport to contain all of the information that a prospective investor may wish to consider. This material is not to be relied upon as such or used in substitution for the exercise of independent judgment. Past performance is no guarantee of future results. This material should not be viewed as a current or past recommendation or a solicitation of an offer to buy or sell any securities or investment products or to adopt any investment strategy. The securities identified and described do not represent all of the securities purchased, sold or recommended for client accounts. The reader should not assume that any investments in companies, securities, sectors and/or markets identified or described were or will be profitable and no representation is made that any investor will or is likely to achieve results comparable to those shown or will make any profit or will be able to avoid incurring substantial losses. Performance differences for certain investors may occur due to various factors, including timing of investment and eligibility to participate in new issues. Investment return will fluctuate and may be volatile, especially over short time horizons. Each investor’s specific portfolio should be individually managed and may vary from the information shown in terms of portfolio holdings, characteristics and performance. Current and future portfolio compositions may be significantly different from the information shown herein. Investing entails risks, including possible loss of some or all of the investor’s principal. The investment views and market opinions/analyses expressed herein may not reflect those of INKOM Wealth Management, Altruist Global Private Equity and/or its affiliates as a whole and different views may be expressed based on different investment styles, objectives, views or philosophies. To the extent that these materials contain statements about the future, such statements are forward looking and subject to a number of risks and uncertainties. Projections do not represent future returns. This informational report does not constitute research or an offer to buy or sell a security or an artwork and may not be used or relied upon in connection with any offer or sale of a security or art fund or fund of art funds. Investments in art and other asset classes are speculative and involve a high degree of risk. All investments may exhibit volatility and investors may lose all or substantially all of their investment. Performance figures are net of the underlying funds’ management and incentive fees. A typical asset manager typically controls trading of the investments in a pool of assets and the use of a single advisor’s trading may result in a lack of diversification. The incentive fee may create an incentive for a manager to make investments that are riskier than it would otherwise make. Performance figures may or may not include participation in new issue income. Assets also may generally use leverage and trade on foreign markets, which may carry additional risks. Investments in illiquid assets like art or other illiquid assets and the use of short sales, options, leverage, futures, swaps, and other derivative instruments may create special risks and substantially increase the impact of adverse price movements. Art dealers may charge higher fees than many other types of investments, which can offset trading profits, if any. Interests in art funds may be subject to limitations on transferability. Disclaimer

Disclaimer Art, commodity and private equity assets just like other alternative investments are somewhat illiquid and limited secondary market for interests typically exists or is likely to develop. This document does not constitute an offer or invitation to enter into any type of financial transaction. Before deciding to invest, prospective investors should carefully read the relevant memorandum and subscription documents and pay particular attention to the risk factors contained therein and determine if this investment product suits the investor’s particular circumstances and should independently assess (with the investor’s tax, legal, and financial advisers) the specific risks (maximum loss, currency risks, etc.) and the legal, regulatory, credit, tax and accounting consequences. Prospective investors should have the financial ability and willingness to accept the risk characteristics of this investment product. This investment product is intended only for investors who understand and are capable of assuming all risks involved. INKOM Wealth Management, Altruist Global Private Equity and/or its affiliates makes no representation as to the suitability of this investment product for any particular investor nor as to the future performance of this investment product. The business of INKOM Wealth Management, Altruist Global Private Equity and/or its affiliates is comprised of a network of entities in various specialist areas. Each legal entity is subject to distinct regulatory requirements and certain products and services may not be available in all jurisdictions or to all client types. There is no intention to offer products or services in countries or jurisdictions where such offer would be unlawful under the relevant domestic law. The charts, tables and graphs contained in this document are not intended to be used to assist the reader in determining which securities to buy or sell or when to buy or sell securities. Benchmarks are used solely for purposes of comparison and the comparison does not mean that there will necessarily be a correlation between the returns described herein and the benchmarks. There are limitations in using financial indices for comparison purposes because, among other reasons, such indices may have different volatility, diversification, credit and other material characteristics (such as number or type of instrument or security). The Standard & Poor’s 500 Index (the “S&P500”), Dow Jones and World Index are mentioned for comparative purposes only because it represents an index typically used as a broad-based measurement to gauge the general performance of the securities markets. The use of this index is not meant to be indicative of the asset composition or volatility of the any portfolio of securities and which portfolio may hold considerably fewer than the number of different securities that make up the actual indexes. As such, an investment in an underlying portfolio should be considered riskier than an investment in the indexes themselves. Certain information contained in this document constitutes “Forward-Looking Statements” (including observations about markets and industry and regulatory trends as of the original date of this document), which can be identified by the use of forward-looking terminology such as “may”, “will”, “should”, “expect”, “anticipate”, “target”, “project”, “estimate”, “intend”, “continue” or “believe”, or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties beyond our control, actual events, results or performance may differ materially from those reflected or contemplated in such forward-looking statements. Readers are cautioned not to place undue reliance on such statements. INKOM Wealth Management, Altruist Global Private Equity and/or its affiliates has no obligation to update any of the forward-looking statements in this document. Any tax statement herein regarding any tax is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding any federal tax penalties in any jurisdiction. Any such statement herein was written to support the marketing or promotion of the transaction(s) or matter(s) to which the statement relates. Each taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent advisor.

Australian Sharemarket – guess the direction

Gold - Bubble or Trend?

Is the GFC2 here?

Similarities to 2008?

How will you feel and act?

US “safe” treasury note – get ready to get 0%

Netherlands – better than Greece?

Europe - France

Europe – DAX

Worse than Lehman Bros

Cash on Hand as a Bearish Indicator Source: Sentimentrader. Fund managers are Herding, having least cash when the assets are overvalued. Cash in U.S. stock mutual funds has sunk to 3.6% of total assets, nearing the lowest level in 23 years

Herding Theory Applies to Investments High Price Low Low Demand High Low Demand High Economics is not the best explanation how markets work Economic Model Investment Model Driver: Rationale Driver: Impulse High Price Low

Herding Regulates Prices Investments Rational valuation Price equilibrium Objective values Supply-Demand Utilitarian Economy Demand Herding Regulates Investment Asset Prices Demand Supply Impulse Price Dynamism Subjective values Supply High Price Low Low Quantity High Low Quantity High High Price Low

EXPANSIVE CYCLE Wealth comes from paper assets (stocks, bonds, etc) CONTRACTIVE CYCLE Wealth comes from tangible assets (art, gold, etc) Kondratieff Economic 55 yr Cycle

. Modern Portfolio Theory (MPT) – Risk and Return Harry Markowitz Modern portfolio theory (MPT) is a theory of investment which tries to maximize return and minimize risk by carefully choosing different assets.  A collection of investment assets that has collectively lower risk than any individual asset. For example, when the prices in the stock market fall, the prices in the bond market often increase, and vice versa. A collection of both types of assets can therefore have lower overall risk than either individually.

Why bother to diversify? Brinson, Hood, and Beebower (BHB) published a study where asset allocation contributed to 96.7% of the portfolio returns

HNWI Asset Allocation of Financial Assets Source: Oliver Wyman Report “The Future of Private Banking” 2008, Capgemini and Merrill Lynch. “World Wealth Report 2008.”

Global Pension Funds Asset Allocation Percentage of portfolios Australia’s Pension assets are overweight in Equities. Switzerland, Japan and Germany has substantial allocation to alternatives, including Art Source: Artnet, Capgemini, OECD Report 2008, Australian Financial Review, 24 Feb 2010, p.5

Why Alternatives? Client ADVISER Structured products Portfolio management Managed funds Insurance Derivatives, Commodities Direct Shares IPOs Real Estate Art Private equity Diversification of your portfolio

Alternative Investments Alternative Investments are mainly used for diversification purposes. It is possible to invest in a variety of sub-asset classes: Hedge Funds Private Equity Commodities Real Estate Art, etc. Investment styles: Relative Value (Arbitrage Strategies) Equity-Based Strategies Distressed and Credits Quantitative Strategies Global Opportunities Emerging Markets

Performance of Alternative Investments Commodities Hedge funds (investable) Private equity Source: Merrill Lynch, Reuters, Mei Moses All Art Index , Credit Suisse; Indexed performance in USD (31.01.04 = 100), 90 110 130 150 170 190 210 2003 2004 2005 2006 2007 2008 2009 2010

Art in Super

Australian Superannuation SMSF data show the asset allocation as “other”(include private equity, hedge funds, art, collectibles, etc) 2.3% to 5.39% Art and collectibles are just 0.4% of the actual asset allocation 99% of all super funds in Australia are SMSFs. At 30 June 2010, self-managed superannuation funds held the largest proportion of superannuation assets, accounting for 31.8% of assets of a $1.23 trillion market (Source: APRA, SPAA) Super assets will grow to $3 trillion by 2022 and $9 trillion by 2040. Relative to Stock market caps globally: $1.1trillion for Australia’s ASX right now $2.6 trillion for Euronext $2 trillion for HK and $2 trillion for Shanghai Stock Exchange $1 trillion for Swiss exchange $1 trillion for Bombai exchange $2.5 trillion for London $1.2 trillion for Deutsche Bourse $3.5 trillion for Japan's Topix

Your superannuation $1.2 Trillion In Secret Fed Bailouts. Even Aussie banks? Masquarade - The Age: 'Most people think a balanced fund is 50/50 growth/defensive Australian Super's balanced fund is 85% growth allocation Host Plus balanced fund is 76 % growth allocation REST Core Strategy is 75% growth allocation Catholic Super is 68% growth allocation What is cash? some funds that invest in things other than cash - much higher risk - and some investors don't realise this. Fixed interest can also be deceptive, some are junk bonds

Is DYI super expensive? Funds Fees/MER 3% ($6,000 per $200k or $120,000 in 20y) vs SMSF accounting + audit from just $500 pa Control Manage contribution and income tax within Convert tax into assets SMSF CMA 6-7% vs Funds ‘cash’ rate 1-3% Start from only $200 (most charge $1500) Upfront fees $0 (most charge 2-4% or $4,000 per $100k)

Why Invest in Art as an Alternative? Convergence of global capital markets is driving the search for alternative, uncorrelated investment assets and there is increasing interest among serious investors in fine art as an asset class. For a favourable risk-return profile it is suggested that a 10 Year investment portfolio has an 10% asset allocation to fine art. Barclays Capital, Equity Gilt study, 2005 Many wealthy investors ... now see paintings and [other categories of art] as viable vehicles for diversifying their portfolios given the low correlation between art prices and ... stocks, bonds and real estate. 2007 Merrill Lynch CapGemini World Wealth Report Returns on art are not correlated with returns on shares. Owning both art and stocks can reduce the volatility of a portfolio by up to 20% while returning about the same amount. Michael Moses (NYU Stern Professor), Economist.com, 22 February 2005 AXA Art applauds the reliability of the Mei Moses indices and their methodology. The website is a valuable resource to all art collectors and others following the art market. Christiane Fischer, President and CEO, AXA Art Insurance

The core satellite approach Core Hedge funds Private equity Real estate Infra-structure Com-modities Art Foreign exchange Long term High yield Country Global Short term Invest-ment guide Satellite Equity Art investments Liquidity Bonds Geography Sector Theme Credit Duration Core portfolio Central portion of a portfolio Well diversified Long-term investment horizon Low maintenance Rational strategic play Satellite portfolio Lesser portion of a portfolio Focused exposure Short to mid term investment horizon or specific themes Higher maintenance Tactical play

Long term Asset Risk/Return ASSET SP500 ART US T BILL GOLD RETURN 10.4% 10.0% 5.3% 5.0% RISK (STD) 15.7% 18.6% 2.7% 21.5% Source: Beautiful Asset: Art as Investment , 2004 by Moses, M. And Mei, J., analysis of 1955-2004 data

Art In SMSF Where will the pieces be displayed? The Sole Purpose Test Use of work of art at no cost: breach of section 62. Loan of work of art to a related party: breach of section 62 Loan of work of art to an unrelated party: no breach of section 62 Lease of work of art to member at market value: no breach of s.62. The benefit to the member is the opportunity to use the SMSF assets by paying an arm’s length amount. There is no cost or financial detriment to the fund as a consequence of the use of the work of art by the member. Detailed expert advice should be sought Risk Management, Investment Strategy Audit

Risk return tradeoff The red dotted line on the graph illustrates the best return achievable for given levels of risk for a portfolio of stocks, bonds, cash and gold using data of the last 50 years. The blue solid line shows the result if the Mei Moses® All Art Index was added as one of the possible investment alternatives. The graph clearly demonstrates that adding art with the performance characteristics of the index to this diversified portfolio tends to reduce the risk of the portfolio for most levels of return. Source: Mei Moses Index (www.artasanasset.com). For an expected return of 10.25% the risk of an optimally balanced portfolio is reduced from about 10% without art to about 7% including art. For those return levels where the blue line is to the left of the red line the implication is that adding art to the investment choices reduces the risk of the overall portfolio. For those return levels where the blue line is to the right of the red line the implication is that adding art to the investment choices at any percentage level will increase the risk of the overall portfolio.

Asset Classes Performance 1898- 2007 109 years average Australian Equities 7.48% p.a. (12.42% with dividends) 1973-2003 30 years average Australian Equities 7% 1978-2006 28 years average Australian Equities up 10.1% p.a. 1971 - 2009 38 year average Australian Equities 14.68%p.a. 1971 – 2009 38 year average International Equities 11.76% p.a. 1971 – 2009 38 year average Property Infrastructure 13.35%p.a. 1971 - 2009 38 year average Fixed Interest 10.40% p.a. 1971 - 2009 38 year average Cash 8.76% p.a. Source: Van Eyk Research, CFS, Reuters

Australian Art Market Index (AMI) Performance 1973-2003 30 year average All Australian Art Index up 8.23% p.a.1 1975-1995 20 year average AMI up 10.3 times, 12% p.a. 1978-2006 28 year average AMI up 11.6% p.a.2 1996-2002 16 year average AMI up 11.5% p.a. 1995-2009 14 year average AMI up 3.19 times or 219% (9.3% p.a.) 1 Australian Fine Art as Alternative Investment by Worthington, A. and Higgs, H., Report 05/02, 2004, 2 “Investors Turn to Art for More Attractive Returns”, 24/05/2008, p.80 Emily Kame Kngwarreye x 5 times AMI Clifford Possum Tjapaltjarri x 4 times AMI Rover Thomas Joolama x 9 times AMI Australian Indigenous Artists Performance

Clifford Possum Tjapaltjarri $2,400,000 "Warlugulong" 2007 1977 Papunya Tula, NT Sotheby's Melbourne, 24/07/2007, Lot No. 114 synthetic polymer paint, oil and natural earth pigment on canvas 202.0 h x 337.5 w cm Clifford’s works earned about 46% pa compounded. Artist sold it for $1,200 in 1977. Hank Ebes, an art dealer, bought it from the Commonwealth Bank collection for about $6000 in 1997 (13 years ago).

Emily Kame Kngwarreye $1,056,000 "Earth's Creation" 1995 Utopia, NT (Northern Territory) 6m x 2 m 2007 Lawson~Menzies, Sydney Buyer: Tim Jennings, Alice Springs (Mbantua Gallery) Emily began painting in this Yam style since 1992, her paintings earned approx 57% pa compounded

Rover Thomas $778,750 "All That Big Rain Coming Down Top Side“ 1991 2001 Sotheby's Melbourne, 09/07/2001, Lot No. 66 Total Sales at Auction to 2010: $14,562,316.00 The painting depicts a waterfall on Texas Downs Station in the eastern Kimberley, where Rover Thomas once worked as a stockman. The upper half shows channels of water running to the cliff’s edge and then cascading down the side of the cliff. The horizontal line across the middle of the painting indicates the cliff edge along which a road runs Rover’s works earned about 100% pa compounded.

Where to from here... Blue Sky closing in 2 days SMSF 13000 INKOM Books www.inkom.com.au Art www.ArtTrust.com.au Feedback Form please Questions