Are Art Investments a Worthwhile Asset Class?

Are Art Investments a Worthwhile Asset Class?

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.

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About Daniel Lacalle

Daniel Lacalle (Madrid, 1967). PhD Economist and Fund Manager. Author of bestsellers "Life In The Financial Markets" and "The Energy World Is Flat" as well as "Escape From the Central Bank Trap". Daniel Lacalle (Madrid, 1967). PhD Economist and Fund Manager. Frequent collaborator with CNBC, Bloomberg, CNN, Hedgeye, Epoch Times, Mises Institute, BBN Times, Wall Street Journal, El Español, A3 Media and 13TV. Holds the CIIA (Certified International Investment Analyst) and masters in Economic Investigation and IESE.

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