Flop art: Warhol dream fund turns to nightmare
PARIS (Reuters) - As the financial crisis loomed in late 2007, Federico Moccia was in an upbeat mood.
The 40-year-old ex-JPMorgan (JPM.N) banker with a penchant for works by pop artist Andy Warhol had created a $600 million hedge fund and was preparing to move to Asia to woo the region's deep-pocketed investors.
After making a big impression on the Singapore art scene with his recent Warhol exhibition, Moccia was confident the brewing U.S. subprime mortgage meltdown could not dent his plan to stoke returns from his "Cannonball" fund with art and real estate investments.
"I had received a working permit from the Singapore authorities," recalls Italian-born Moccia, speaking from his London office. "The future was bright."
Moccia never got there.
His sprawling portfolio -- including holdings in everything from leveraged hedge funds, pop-art prints of Superman and boutique hotels in Bali -- was suspended in October 2008 when the financial crisis peaked. Moccia's diversification only left him more exposed.
Cannonball's biggest money-spinners were the funds that invested in other hedge funds, a strategy that blew up when credit markets froze. Some of them were also found to have put money into vehicles linked to Minnesota businessman Tom Petters' $3.65 billion Ponzi scheme.
"I couldn't honour the redemptions. There was this thing, this crazy fraud," said Moccia.
To make matters worse, Moccia's much-vaunted art fund was also frozen after he fell victim to one of the oldest and riskiest strategies -- putting all his eggs in one basket.
Moccia had stockpiled work by "Pope of Pop" after he saw the value of a Marilyn Monroe print shoot from $1,000 to $200,000 in the space of a generation.
But his decision to buy into just one artist - even a "blue-chip" one like Warhol - perplexed some experts.
"Andy Warhol prints? That's an area we would never touch," said Constanze Kubern, who manages Castlestone Management's art fund.
Such popular prints were among the worst hit when the crisis swept through the art market as they lacked the one-of-a-kind appeal of a single canvas. Warhol repeated silkscreen prints of the same celebrity in a series of garish colours.
THE DUTCH CONNECTION
As if rollercoaster markets and exposure to fraud were not enough, Moccia's queasy investors have also had to swallow demands from Moccia's primary creditor Fortis Bank -- now part of Dutch state-owned lender ABN Amro after suffering its own collapse during the crisis.
Moccia's holding company Globefin has pledged first to fully repay the $165 million lent by ABN when the Cannonball fund was suspended. Moccia says this has been partly repaid, leaving around $40 million in liabilities.
It remains unclear how long it will take to refund the bank, now being criticized by some investors for collecting interest and debt repayments -- even as they have no access to their money.
In a letter to ABN Amro's Chief Executive Gerrit Zalm in February, Brussels-based lawyer Robert Wtterwulghe accused the bank of putting its own interest before its fiduciary duty to investors as custodian and called for the appointment of an independent liquidator.
"The financing granted to the Cannonball funds by your institution places you in a conflict of interests," wrote Wtterwulghe, who represents 169 investors who have paid around $9 million into the funds.
"The unjustified non-liquidation of these funds serves your and the other parties' interest in the first place, with little consideration for the interest of the investors.
Responding to the accusations, an ABN Amro spokesman said: "The bank has a contractual relationship with Cannonball Funds Limited and, based on that relationship, the bank has obligations to the fund and not to the investors.
"And as far as there might be any obligation to the investors ABN Amro is of the opinion that these obligations have been fulfilled and we do not see any basis for any accusation or claim as suggested in the letter by Wtterwulghe."
The Cannonball Fund prospectus forewarns investors that Fortis, "if required", would provide the fund with credit facilities. Investors also received an advisory that the funds' activities might involve "a high degree of leverage."
Moccia contends that appointing an independent liquidator would kick off a fire-sale that would be against investors' interests, adding that he is best positioned to unwind the complex positions he helped invent.
Technically the funds are still alive, able to collect fees and not bound to be dissolved. They are registered and recognised in the British Virgin Islands, where the regulator says Globefin is also still licensed to provide management services.
Keeping the funds suspended does at least give Moccia some prospect of making money and thus, amends.
The Cannonball Art Fund, for example, charges no management fee but instead takes a 30 percent commission on the sale of any artwork. Moccia said he was considering waiving the fee.
Moccia says if he can negotiate asset sales and unwind positions he will be in a better position to refund investors - and, hopefully, to forget his own brief "15 minutes of fame."
"I want to give back the money to all the investors, close the fund, and end this story," Moccia said. "I'm fed up."
(Additional reporting by Kevin Lim in Singapore)
(Editing by Sophie Walker)