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Are Art Investments a Worthwhile Asset Class?

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Are Art Investments a Worthwhile Asset Class?An article writen by Zachary Elfman – Finance Expert @ Toptal, #Art #Investing #PortfolioManagement

Executive Summary

The market of art investing
  • With $60 billion of transactions in 2016, the art investment market is comparable in size to the venture capital industry, which had $63 billion of exits within the same year.
  • 81% of art transactions occur in just three countries: UK, USA, and China.
  • Purchasers of art are divided into three categories: investors, traditionalists, and aficionados. Despite these segmented intentions, 72% of all collectors state that their purchase of art has an investment view to it.
Types of art
  • Modern contemporary art and historic “Old Masters” are the most popular forms of art investing, comprising 65% of total transactions. The former is deemed to contain the most growth potential, while the latter is seen as the safest store of value.
  • The correlation between returns from contemporary art and Old Masters is 0.34, which reflects upon their different investment characteristics
  • Data for art prices is opaque and relies on manual disclosure of transactions. For this reason, contemporary art is argued to suffer from price inflation due to survivorship bias.
  • A catalogue raisonné is one of the best tools for validating and valuing a piece of art. Generally speaking, as a piece gets older, it collects more citations, which provides more certainty over its valuation.
  • Validation of art by a noted gallery or critic can singlehandedly increase the value of a work of art by up to 30%.
Is it a worthwhile asset class?
  • Art can be defined as a luxury good that holds its value well. Investing in art (especially its contemporary forms) can bring returns higher than the equity markets, alongside correlation and inflation hedge benefits.
  • However, this comes with the art market being opaque and and the underlying asset having negative carry.
  • Art can appeal to the active investor that likes to participate in their investment after the check is cashed. This draws comparisons to early-stage startups or sports-related investing.
  • Investing in the wider art economy could be a safer, more transparent, and more diverse form of gaining exposure to the art asset class—for example, art insurance and valuation services.

Continue reading in https://www.toptal.com/finance/financial-analysts/art-investments

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