alternative investments

Art as an investment

When viewed as an investment, art is best viewed as a speculative asset. Art’s inherent “value” is less financial than cultural. Most artworks do not appreciate quickly or significantly. We caution that art markets fluctuate, just like financial markets. While we are happy to help clients make investment decisions, we are careful to manage their expectations. We do rigorous, in-depth art historical and economic research for our clients.

Some people approach art strictly as an asset class. As investors, they frequently engage in a “pack” mentality, favoring and, often, ultimately creating art commodities or art currencies. (Warhol and Basquiat are unquestionably commodity classes.) There is nothing wrong with this. Though it is rather boring. In reality there are many more losers than winners in this approach.

The majority of collectors ask, as a final question in the purchasing process, “Will this art asset appreciate?” For them, they act initially on passion and preference, and finally on cost and economic appreciation. It is not uncommon to hear collectors talk about their buyers’ remorse and the art debt. Naturally, there is and ever-looming question of value.

Understanding value

In our view, value can be placed on a work of art in several different ways:

• Historical significance—museum and independent curators, art historians, and critics bestow “canonical” value on a piece of art. This may or may not have an effect on a work's monetary value.

• Monetary value—this is determined by the marketplace, which is made up of artists, art buyers, dealers, auction houses, and collectors. Supply and demand often determines monetary value. Yet, a host of situations can affect these two forces, pushing the monetary value up or down. Moreover, one must keep in mind that liquidity is variable, largely dependent on market conditions.

• Philanthropic value—gifts or donations of art can sometimes be made to art museums and other nonprofits. Of course, a work of art must be significant, or seen to have potential for becoming significant, and must also be seen as adding value to an institution’s collection. Only when a donation is accepted and legally transferred does an artwork have a monetary value for tax purposes.

 Art investments

"The more things change, the more they stay the same.” 

For several years, the art, fashion and business media has been abuzz about:

• the extraordinary growth of the art market until the global financial crisis of 2008 resulted in a downturn

• a resurgence since 2012, particularly in the top strata of the brand names at auction, and

• the more recent slowdown due to “collector fatigue.”

The art market has always been a business sector subject to fads and fashions and sometimes volatile business cycles. This has been true from the Antwerp fairs of the 1500s to the present. Much of the older, most desirable modern and Post-War art is already in museums or private collections. This is why contemporary art has become so popular as an investment. There are few slumbering giants, waiting to be rediscovered. In fact, rediscovered artists are typically poor candidates for acquisition.

We recommend A History of the Western Art Market, A Sourcebook of Writings on Artists, Dealers, and Markets. The book may appear to be formidable. In fact, it is a very accessible selection of informed opinions and revealing readings.