This Huffington Post article makes a case for investing in art, and more specifically in an art fund. While I agree that art can be a beneficial and important part of a well diversified portfolio, I am strongly opposed to the idea of investing in an art fund. These funds have had very little success in making money. In fact, I have heard of only one success story, and that was well over 50 years ago. There are many inherent problems that art funds face including but not limited to: inventory valuation issues (and computing NAV); proper accounting with regards to new investor money and redemptions; liquidity issues; transaction costs, etc.. So, my advice when it comes to art funds: Avoid them like the plague.
Besides being a useful diversification tool, which this article aptly points out, there is another benefit of investing in fine art that you never here discussed. It has to do with human behavior and their affinity to run with the crowd. For example, the stock market goes way up and suddenly everyone is buying and talking about stocks. Suddenly, the market tanks and investors are bailing out. As a result, investors buy high and sell low, which is obviously a poor recipe for sound investing. I’m not saying everyone is doing this, but as many studies have shown, it is quite common.
Now, let’s turn to investing in fine art. Unlike stocks, selling a piece of art is not something you can do by just clicking on your mouse or calling your broker. It takes more time and effort. As a result, a person is much less likely to sell their art when values are down and more likely to ride out economic storms. Thus, removing the ability to sell on impulse will likely lead to better investment decisions and higher overall returns.
A better way to invest in fine art is to find an advisor or dealer you can trust. Someone who can guide you along the way to help you avoid overpaying, or even worse, buying fake art. Someone who will sell your art for what it’s worth and not charge excessive commissions. Another route to art investing might be to partner with a trusted art expert (or dealer) in a specific piece of art or artworks; clearly defining the parameters of the investment beforehand.
Fine art is not only an investment that enhances our daily lives, but it can also be a rewarding one as well. Art is not just for the wealthy. There is beautiful art to be had at all price levels and there are many good reasons to invest in art, many of which are not financial. However, when looking at art as an asset one should keep in mind that it is not as easy as the tabloids make it seem. There is absolutely no guarantee that your art purchases will appreciate. The best reason to buy art is because you love it, and because it adds joy and beauty to your life and those around you.
Why Invest In Art Now?
Madelaine D’Angelo Founder and CEO of Arthena,
Between markets in flux and Brexit, investors are looking for alternate ways to invest in tangible assets that don’t rely on the government. The growing trend in high net worth investing is to seek out asset classes with scarcity, like fine wines, antique cars, and real estate. However, in today’s global market the real question is: Is art investment the next move? Arthena’s Founder, Madelaine D’Angelo, breaks down the art market, art investment opportunities, and why to invest in a fund right now.
The art market
The art market rebounded quickly after the last recession, faster than traditional investments. High net worth individuals (HNWI) with a portfolio diversified into art assets were not as greatly affected. Additionally, rather than investing in stocks or bonds, art is provides investors with an alternative, tangible opportunity.
In times of high and rising inflation, art has performed historically well across all market sectors. Typically when there is an uncertain market, collectors look to purchase art with an investment view, not just to purchase beautiful objects. According to the Deloitte Luxembourg & ArtTactic Art & Finance Report 2016, 73% of wealth managers in 2016 (up from 58% in 2014) said their clients wanted to include art and other collectible assets in their wealth reports, in order to have a consolidated view of their wealth. Also, in the 2016 report, 78% of wealth managers (up from 55% in 2014) said that they thought art and collectibles should be included as part of a wealth management offering.
Modern portfolio strategy
Modern portfolio strategy dictates that investors should have 5-7% of their portfolios diversified into the art market. The low correlation of art to equities & traditional asset classes provides valuable portfolio diversification, which leads to an increase in overall returns. According to the 2016 Deloitte Art & Finance Report, 72% of art collectors said they bought art for passion with an investment view. Further, there was an increase from 3% in 2014 to 6% in 2016 of clients and advisors looking to buy art specifically for investment purposes. What better time than to invest in alternative assets than now?
Art has historical value
It is a tangible, beautiful work of art in which value will remain if the price dips. There is a prestige associated with art that will never change, even if the value changes.
Why it’s the right time to invest in a fund ?
Despite all of the compelling data on the art market, it is not a venture to be entered into without careful consideration and deep expertise. Through art funds, investors have the ability to quickly and securely tap into expertise and research that would otherwise take decades to cultivate.
Art funds allow for a combination of art & financial expertise with a large capital base and exceptional advisors. You, as the investor, purchase shares in a fund and art experts invest in works of art that reflect positive trends in the market so that you don’t have to risk purchasing work that won’t provide a return. Unlike dealers who hold onto artworks for short periods time for quick turnarounds, the “buy & hold” strategy allows for work to appreciate in value so that art advisors can place the work on the market at the right time. Artwork is traded infrequently due to the November-May auction schedule, which is why it is important for art experts to use market analytics to find the best time to sell. Most transactions come through private sales, not gallery sales or through the secondary market. This allows the investor to free up time and cash reserves to take advantage of opportunities in the market without worrying about their art investment. Also, the large variety of categories in funds allow for various ranges in investment, from higher risk opportunity funds with emerging artist’s work to lower risk traditional funds with blue-chip Modern artwork.
You need access to find the right opportunities, so investment funds are the perfect entry-way to begin your art investment history. Investment funds, like Arthena, provide access to new investors with an affordable minimum buy-in, especially when compared to other funds and online art marketplaces. Investors can diversify their portfolio without the worry that their investment will fail to yield a return, and partake in investing in a booming asset class.