In the early morning hours of Armory Week on Friday (normal morning hours for finance-types, just-waking-up hours for the rest of the art world) the Art Investment Council took over the media lounge of Pier 94, hosting a series of discussions pertaining to the art market. The besuited crowd that showed up to to hear the Wall Street Journal's Kelly Crow moderate a discussion on art funds was large, though not nearly as colorful as those who gathered in the room previous afternoon to see Björk and Ragnar Kjartanssontake on the subject of coolness — illustrating the vast disparity in the way in which different audiences interact with art at fairs.

The panel include fund managers Bruce Wilcox and Prajit Dutta, the latter of whom is also an economics professor at Columbia, Jeff Rabin of ArtVest Partners, who worked to created a fund that eventually got killed during the financial crisis while he was employed in financial services at Christie's, and Reuters finance blogger Felix Salmon, who has stated quite plainly that art funds "have strong claim to being the most ridiculous asset class in the world, no one should ever invest in them, and they invariably fail."

The group took on the controversial topic with pizazz. Theoretically, art funds are a way of capitalizing on the art market's tremendous growth (historically over the last last decade), but as Salmon points out (frequently) on his widely cited blog, they are extremely risky investment vehicles. After a boom in the mid-aughts, there aren't many funds still in operation post-2008. ArtVest puts the amount of invested assets at around $1 billion globally, which is not terribly large in investment terms (it's four Qatari Cezannes, for those counting). Those investment vehicles that actually complete their funding rounds, buy artworks, sell them, and return a profit to their investors are particularly rare (on either side of the economic crisis).

Though Salmon was outnumbered, he held his own, pointing out that most art funds fail, and the success-imbued makeup of the panel probably had more to do with survivor bias than the fundamental strengths of the industry. There were, however, some decent counterpoints to his doomsaying. While Salmon argued that art funds are "an animal that doesn't serve any obvious purpose," Wilcox came back with the point that neither, really, does gold. Touché.

The panel ended up compiling a sort of list of how to vet an art fund during the due diligence process as a potential investor. The following is a list of questions that the panel came up with:

— Who is the manager? What is his (or her) background? How much of his or her own capital is invested in the fund? Is he or she advising on art purchases outside of the fund? If so, make sure the best artworks are going into the funds, not into the hands of his or her private clients.

— What kind of art is the fund buying — is it reasonably priced enough that a return is probable? If it is in a particular section of the market (Chinese porcelain, Indian painters, etc.), is there reason to believe that the market is experiencing secular growth? Are the works good representatives of the artist's work? Is the fund's portfolio diversified?

— What's the fund's previous record? What's the track record like in bad years? Lastly, if the fund is reporting returns to you, make sure you know how much art is still in the portfolio waiting to be sold (if only two of 20 works have been sold, the rate of return doesn't mean much).

But really, the highlight of the discussion came at the end, from an audience member who reminded everyone that the larger art world still doesn't understand what art funds do, nor the huge risk associated with "investing" in art, and unintentionally showed how kooky the art market has become. Why would you buy into an art fund, she asked, when you could just buy at auction and flip it six months later for twice the price? (This had something to do with a small Gerhard Richtera friend had sold, or something). The answer is, quite plainly: If you think it's that easy, you shouldn't be risking your money doing either thing.

Overall, what was the takeaway of the panel? If you are going to gamble on art funds, at least do your homework and make sure you know how to play the game (and how to count the cards).