Art as an investment
Why should art be considered as an asset class?
The main characteristics usually used to define art markets can be summarised in the following way: high-risk investment, illiquid, opaque, unregulated, high transactions costs, at the mercy of erratic public taste and short-lived trends. Artworks do not generate any cash flows that can be discounted, except to the extent that income can be obtained through lending and incurring expenses in the form of storage, insurance and associated costs. The art markets are also currently virtually ‘unhedgeable’.
This short description of the art markets might be enough to discourage many to look at it.
However, if we take a closer look at the latest trends which are directly or indirectly affecting the art markets’ environment, they suggest the emergence of a financial fine art market where fine art is considered as a new asset class. The simultaneity of those trends creates an environment that in the past has never been very favourable to supporting the materialisation of such a transformation.
Globalisation and research
With the long-termed, worldwide trend of increasing wealth, alongside the growth in knowledge about collectible markets, a much larger community has started to be interested in collecting and/or investing in rare collectible assets.
Art in the overall asset allocation strategy
Art is attractive from a financial investment point of view over the long run as it is a store of value that generated moderate positive real return. Art has also a low correlation with stocks and bonds which offer diversification possibilities.
New types of collective investment vehicles dedicated to art or other collectible assets
Several new different initiatives around the world search to securitise several billion of US$ of artwork, such as art investment funds, tradable art structures products or dedicated art trading exchanges.
Increasing interest from the financial industry
We can see the development of art services among the financial institutions. The offering mainly consist of three categories of art services: art advisory services, art lending and art investment services.
The art market is becoming more and more transparent due to research in finance and economics as well as date dissemination.