Disclosure: Hedonova invests in works of art. Hedonova conducts business with some of the firms mentioned here. This is not investment advice.
We've all read about paintings being bought and sold for tens of millions of dollars and wondered how could something that a 5-year-old could make be worth so much! We've gawked at the magnitude of money changing hands in the highbrow world of fine art and wanted to be part of the game.
Just like startups, where only a fraction goes on to become unicorns, a minuscule percentage of artists command million-dollar price tags. They're the Picassos, Basquaits, Warhols, and Monets of the world.
Art prices, like startup valuation, can seem mystical. They're driven by popular trends, condition, rarity, popularity in pop culture, quantitative factors like auction history and provenance (who's owned it before you). Here's a look at how art markets work and how retail investors can profit from it.
Highlights
- Art is a $1.7 trillion market.
- Institutional exposure to art is just 1% of their portfolio, compared to 38% in listed equities (large opportunity for growth).
- Contemporary art (art post-1960s) has returned 13.64% compared to 8.9% for the S&P 500 in the last 25 years. (view chart)
- Online purchase of high-end artwork is up 500% since 2020 because of covid.
- We notice that the works by the best-selling artists provide higher returns than emerging artists. Top artists are represented by the Artprice100 index. (Chart - Artprice100 vs S&P500)
Art vs other assets classes - Financial performance
| Asset class | 25-year CAGR | Correlation to contemporary art Maximum annualized loss observed (3-year horizon) |
|---|---|---|
| Art | 13.6% | -0.5% |
| S&P500 | 8.9% | -7.2% |
| Global equities | 7.6% | -14.5% |
| Gold | 6.5% | -16.4$ |
| US Housing | 4.1% | -13.8% |
\For the period between 1985 and 2020)
Pros of art investing
- Art is uncorrelated to equity markets. The correlation factor stands at 0.34.
- Art is resilient in market downturns. Buyers of artwork tend to be ultra HNIs who normally have disposable incomes even during market downturns. During the 2008 crisis where equity markets dropped around 50%, art markets dropped around 20%.
- Art performs well in high inflation regimes.
Average real return during periods when US inflation was higher than 3%.
| Asset class | Real returns |
|---|---|
| Contemporary art | 23% |
| Emerging market equities | 12.6% |
| REITs | 5% |
| S&P 500 | 3.8% |
| Gold | 0.2% |
\For the period between 1985 and 2020)
Cons of art investing
- Quantitative data & research are scarce and not available publicly.
Illiquid. Art used to be illiquid but with the advent of fractional investment platforms, can be bought and sold just like stocks. Trading volumes however remain low.- Art assets do not generate cash flow
How can a retail investor invest in art?
- Use fractional investment platforms like Masterworks, Otis, Maecenas, et al. These allow you to start investing with a few hundred dollars and gives you access to works by artists who have defined culture - Andy Warhol, Claude Monet, Basquiat, Kusama, and more.
- Join an art syndicate with friends and associates. Most large art galleries run syndicates (special purpose entities in the form of partnerships) for their clientele to invest in a specific artwork.
- Invest in an art fund like InArt, Atremundi, and Anthea. Investments starts from around $100,000.
Individual artwork historical performance
- Andy Warhol's Last Supper. Purchased in 1988 for $98,965 and sold in 2015 for $8,232,500, resulting in an 83.2x return, a CAGR of 17.79%.
- Yayoi Kusama's PUMPKIN. Purchased in 2006 for $16,800 and sold in 2018 for $999,000, resulting in a 59.5x return, a CAGR of 40.56%.
- Richard Serra's Untitled 73. Purchased in 1987 for $15,400 and sold in 2014 for $1,157,000, resulting in a 75.1x return, a CAGR of 17.55%.
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Further reading
- Deloitte Art & Finance Report 2019
- The Art Basel and UBS Global Art Market Report
- Barrons: Contemporary Art Posts Strong Returns With Less Volatility in 2020
- Citi Private Bank: The Global Art Market
Reports critical of art investing
Submitted August 11, 2021 at 01:46AM by hedonova https://ift.tt/3xC2xnX
