• Yvonne Döbler

That sounds fantastic.

(Reading time: 6 - 12 minutes)

Instrumente aufmacherPhilanthropy. When culture and wealth can agree on a goal, something special is created. Buying historical string instruments and making them available to top musicians is an investment model that benefits society and even pays off.

"What a tragedy," thought Kent Nagano when he took up his post as General Music Director of the Philharmonic State Orchestra in Hamburg five years ago. All of the historic string instruments that the orchestra had had - some since its founding in 1828 - had been destroyed in the war. "The Hamburg Philharmonic State Orchestra represents one of the world's greatest musical traditions.I can hear - and feel - the unique DNA in the orchestra's sound," he says, smiling, "Beyond the outstanding skills and talents within the orchestra, the musicians have a great mindfulness, sensitivity and devotion to music and its tradition."

This special skill should be exercised on special instruments - Kent Nagano therefore wants to offer the musicians the opportunity to play on historical string instruments again. Since 2015, he has been making repeated attempts to acquire them for the Philharmonic. Despite the best contacts and many supporters, it quickly became clear to him: these instruments are too expensive to be acquired for an entire orchestra, for example by donation. Today, historical instruments cost more than 250,000 euros. If the violin maker was famous, such as Antonio Stradivari, prices in the millions of euros are possible.

But Nagano, American conductor with Japanese roots, does not give up - his latest attempt will be a success. "We have received several instruments from investors in just one year. If it weren't for Corona, we could already be giving concerts with them."

The key to this is an innovative investor concept and two partners. The idea: an investor buys a historic string instrument and lends it to one of the Hamburg Philharmonic. To ensure that its sound is in harmony with the other instruments, it is selected jointly by the musicians, Maestro Nagano and the orchestra's board of directors. The instrument will be purchased through J&A Beare in London, the world's largest trading house for historical musical instruments. Christian Reister is responsible for looking after the investors.

The 48-year-old is known in the market for brokering historical violins, violas and cellos. His specialty: he brings together highly talented musicians and wealthy investors. "Some people have investment needs, they want to diversify, they have an affinity for music and an altruistic streak - they think these instruments should be played and don't belong in a safe. At the beginning of the year, I was able to arrange for Darius Preuß, a talented 17-year-old up-and-coming violinist, to buy a high-quality Italian violin from an investor," says Reister. Musician and patron got to know each other and both are happy about their partnership.


Nagano is now using this model for the Philharmonic as well. For investors, it has a twofold charm: first, historical string instruments offer a good opportunity for diversification, because the prices of these mobile tangible assets develop comparatively independently of those of other asset classes. And secondly, the performance is impressive. "In the past, the average annual performance of high-quality instruments has been five to eight percent - and in some cases significantly higher," says Reister.

The investor concept is simple: the musician (in the case of the Philharmonic, it is the orchestra's board) signs a loan contract. In the contract, the musician agrees to handle the instrument properly and often also assumes the costs of all-risk insurance. The annual premium is usually between 0.2 and 0.5 percent of the instrument's value. For a 250,000-euro instrument, this is less than 1,000 euros per year. This covers destruction, damage or even forgetting it in the subway. "I advise to follow up the insurance value every two to three years by value appraisal, so that the risk is always fully covered," clarifies Reister.

In addition, the loan contract regulates the maintenance of the instrument by a previously determined expert - the costs for which are also borne by the musician. "The investor thus calls a checkbook-maintained instrument his own," explains Reister. In addition, the musician plays an annual house concert at his patron's home - but the Philharmonic waives this clause. "It is a true partnership. For the musician, the historical instrument opens up new worlds of sound and the chance to be perceived on a world level. At the same time, it secures the investor's capital. Historic string instruments do not necessarily have to be used to maintain their value, but an instrument played by professionals remains in good condition. And the investor gains access to an interesting environment." Kent Nagano adds, "I wish more people would invest while recognizing the vital importance of culture and music to our society.The value of a historical instrument is not only measured in terms of money, but also in terms of sound and the effect it has on the musicians and our society as a whole. It is an investment that carries the orchestral tradition into the 21st century."

Reister advises those interested in this model to keep a historic string instrument for at least five years - the longer the better. "Family foundations buy these instruments with the perspective of holding them for the next 30 or 40 years, which is at least one generation. Investors do not earn any current income this way, but there are hardly any current costs either. A profit is realized through the increase in value when the instrument is sold."

Examples from the past prove that this can be considerable. The Stradivarius "Tom Jenkins", built in 1667, was sold in 1948 by the London dealer. WE Hill & Sons for 1000 pounds. At Sotheby's it brought around 375000 pounds in 1995. "That's an annual return of over twelve percent," explains Tim Ingles, a former Sotheby's employee and co-owner of the Ingles & Hayday auction house.

"Marie Hall" - a 1709 Stradivarius that sold for £22000 in 1968 and changed hands for £473000 at Sotheby's in 1988 - performed even better. "That's almost a 16 per cent annual return," Ingles calculates, explaining, "In the 1970s and 80s, inflation and rising international demand in the violin market had led to these big price jumps - today I think seven per cent is a realistic return expectation."

The private owner of the instrument even realizes this tax-free after twelve months. Those who bequeath a collection of string instruments that serves the general public can also take advantage of other tax benefits (see the text "Historic String Instruments and the Taxman" at the bottom).

The idea of investing in historic string instruments is not new. But the use for an entire orchestra, as Kent Nagano is planning, has not existed before: "Investors can thus jointly invest in a stock, yet to be created, of 25 high-quality, exceptional-sounding instruments, which the Philharmonic State Orchestra can dispose of on loan," Reister explains.

The total investment volume will be around 20 million euros. As with any investment, there is also an exit strategy for this one: "After five years at the earliest," says Reister. For the State Orchestra, that would mean that new instruments would then be needed. That's why an extension is also planned. "We as an orchestra are interested in a lasting partnership and are happy to find patrons who share our love of music," Nagano confirms.

The idea sounds good. But there are risks as well. First and foremost, price and quality must be right when purchasing. One example shows how difficult it is to correctly assess the value of a historical string instrument: In 2014, the "Macdonald" viola created by Stradivari in 1719 was to be auctioned by the auction house Sotheby's for 45 million dollars. Since only eleven of these instruments, but several hundred violins by Stradivari are still preserved, this price seemed realistic. In fact, however, no buyer was found. "One of the big problems is the opacity of the market. Very many top instruments are sold privately today. So the prices achieved cannot be tracked," explains expert Tim Ingles.

To get a realistic overview of the market, Christian Reister recommends the "Fuchs-Taxe", named after its publisher: It is a listing of prices achieved for historic violins in the past that has been kept since 1907.

At least as important - and difficult - is the classification of quality: it results from the condition, provenance, to whom the instrument is attributed, age, the creative period of the instrument maker, sound, previous owners - who played it, who owned it. "Comprehensive documentation of originality is essential. Anyone looking to buy should have certificates of authenticity, CT scans, appraisals and dendrochronological reports," Reister advises, "because these are the documents a potential buyer will later demand from the current investor."

Pitfalls also lurk in the documents and attributions themselves. "From the school of a particular luthier does not mean that it was the luthier himself. That's why the rule is: don't compromise on the documents and read them very carefully," says Reister.

Last but not least, the quality of the restoration is also significant. After all, historical instruments are almost always restored. "The neck is often no longer the original, but the body and scroll should at least have been made by the same luthier. A detailed condition report from independent experts is particularly relevant in these cases."

Historic stringed instruments - important violin makers include Guarneri del Gesù, Antonio Stradivari, Guadagnini, Bergonzi, Guarneri, Montagnana, Amati and Grancino, but also masters such as Gagliano and others - are usually not available for less than 250000 euros. And contemporary violins of the top class can also be a good investment. The necessary investment then lies between 45000 and 80000 Euros - instruments by Stefan-Peter Greiner, Martin Schleske, Alessandro Ciciliati or Francesco Toto, for example, are in demand.

Tim Ingles would currently like to inspire investors above all for violins from the 19th and early 20th centuries: "I see the greatest potential for value appreciation in high-quality Italian and French instruments in particular." Among his favourites is the French violin maker Jean Baptiste Vuillaume: "When I started my career at Sotheby's in 1994, his violins were auctioned for around 30000 pounds, very rarely for 40000 pounds. Today they regularly bring 150000 pounds. At one of our auctions in October 2020 we achieved a new record price of £312000." He is less convinced about most of the other violin makers from France and Germany who worked in the early 20th century: "In the past 27 years I've been in the business, they've hardly increased in value."

For private investors who want to leave the selection to an expert, this makes Reister's service even more interesting. "Not only do I find suitable instruments for investors, but I also introduce patrons to talented up-and-coming musicians recommended by professors or famous conductors. And with orchestra projects like Maestro Nagano's, I'm currently thinking about a new investment solution, perhaps even via tokenization," he reveals, smiling, "That would be charming - investing in yesterday's instruments with tomorrow's technology." ®


Historic stringed instruments and the taxman.

"Investments in historical stringed instruments are also interesting from a tax point of view," explains Philipp Windeknecht, lawyer and tax consultant at Flick Gocke Schaumburg, giving the details:

// 01. income tax

In most cases, string instruments are held as private assets for tax purposes. A gain on sale is therefore only taxable if acquisition and sale take place within one year. The speculation period is extended to ten years if taxable income has been derived from the use of the instruments. This is the case in the case of leasing against payment. The sale of parts of a larger collection of instruments held on a long-term basis and/or inherited is not taxable, as it does not lead to the assumption of a trade or business. A "three-object rule" as in the case of real estate also does not exist.

02. inheritance and gift tax

The basis for taxation is the dealer purchase price determined in the comparative value method on the reference date. This value is reduced by the costs to be borne by the seller at auctions, such as the buyer's discount, seller's commission, transport, insurance, marketing and illustration costs.

The Inheritance and Gift Tax Act provides a (partial) exemption for cultural property, which may include historic stringed instruments. The small exemption (60 percent) applies to scientific collections - which can also be historical string instruments. For example, they trace the historical development of stringed instrument making. Due to the extremely small market, even a handful of exclusive instruments is considered a collection.

Further requirements: The preservation of the cultural asset must be in the public interest because of its importance for art, history or science. And the annual costs should exceed the income generated. The instrument must also be located predominantly within the EU or in a state of the European Economic Area and remain there for at least ten years. Permanent safekeeping in a third country, such as Switzerland, is not tax-deductible. The use of the instrument on concert tours worldwide, on the other hand, is not tax detrimental.

Furthermore, the instrument collector must be prepared to conclude a loan agreement. This contract must provide for the careful treatment of the instruments by both the lender and the borrower, as well as for their safe and secure storage and care. Cultural objects which have been in the family for at least 20 years or which are entered in a register of nationally valuable cultural assets in accordance with § 7 Para. 1 of the Cultural Property Protection Act (Kulturgutschutzgesetz) are eligible for the large tax exemption of 100 percent. This requirement is examined individually for each instrument in the collection and the tax exemption is granted accordingly.

03. the case of inheritance

If the event of inheritance has occurred, the heirs can subsequently fulfil the above-mentioned requirements within six months. However: the tax exemption ceases to apply with effect for the past if the instruments are sold by the heir within ten years of acquisition (date of death or date of execution of the gift) or if the conditions for tax exemption cease to apply within this period.


Author: Yvonne Döbler

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