Alternative Investment: Art.

Alternative Investment: Art.


At a time when traditional markets are experiencing unprecedented turmoil, and investors can no longer rely on their established portfolios, they are seeking alternatives. Art, as a commodity, has long held an appeal to investors for the social caché it holds. In more recent years however, it has emerged as a legitimate asset class with the potential for enormous returns on investment.

Historically the Art Market it has been characterised by closely knit, exclusive relationships between gallerists, collectors and artists. An established apparatus which has bred success to those in the right circles but also engendered a lack of transparency. This understandably remains
intimidating for potential speculators.

Art, like any other market, mirrors the economic circumstances in which it exists. Over the last half-century or so, as wealth disparity has grown and the middle-class has shrunk, Art as a commodity has increasingly become
exclusive to the super-wealthy. Megagalleries like Gagosian, Hauser&Wirth
and White Cube have grown from strength to strength, taking full advantage of a marketplace that has become professionally corporatised.

However, as the pandemic has taken hold, the art world has been shaken from top to bottom. Despite the recent success of online auctions at the major houses, specifically Sotheby’s’ Rembrandt to Richter sale, global auction sales have declined by 49% in the first half of 2020. Figures show that auction sales from Christie’s, Sotheby’s and Phillips ended up at $2.88 billion in the first half of 2020, down from $5.47 billion in the first half of 2019. This performance reflects the anxiety and apprehension the pandemic has provoked as investors hedge their bets and play it safe. But
as unnerving as this period of social upheaval has undoubtedly been, it has also brought with it interesting new developments.

It has long been mooted that the evolution of technology would change the face of the art market, but until now the art world, so beholden to its traditions, has resisted. In the face of Covid-19 though, it has had no choice.
According to the Hiscox Online Art Trade Report for 2020, produced by the market research firm ArtTactic, “The impact of Covid-19 has greatly accelerated online sales so far, with online-only auction sales by Christie’s,
Sotheby’s and Phillips estimated to have generated $370 million in the first half of 2020″. This represents a staggering increase of 436% from the same period in 2019 and suggests that the pandemic has acted as a turning point for the online market.

So, there is movement and reason for optimism as Art has shown yet again
that its low correlation to traditional investments and its ability to distinguish itself as valuable portfolio diversification makes it market resilient. However,this must still be taken in the context that the market as a whole has suffered. According to ArtTactic’s Contemporary Art Market Confidence Report 2020, “So far this year auction sales among the three houses were down 87% compared to the same period last year”. The environment is then one where the art market, despite showing that it can adapt and be resilient, is still yearning for investment. For investors, this situation presents opportunity. There is a lot of good stock out there, all
readily available to access online from home.

So, what are the avenues open to intelligent buyers to begin the journey
of art investment? The obvious answer is galleries. This sector has suffered
from the impact of Covid and needs sales to survive, and how. PACE still represents artists who are starting their careers and have the potential to
rocket in value. Unlike other galleries of comparable stature which largely work with established artists whose markets, though already very strong, might not present the same short-term possibilities.

For investors on a lower budget, Alison Jacques, Michael Werner and Frith Street Gallery, all within walking distance of each other in Fitzrovia, Mayfair and Soho, deal in high-level work of international repute for more
‘affordable’ prices. They are not only commercial spaces but important
cultural sites and have repeatedly shown they and their artists are worthy of patronage.

Art funds, in recent years, have provided potential speculators with investment vehicles dedicated to giving their clients a return. These firms are not for the emotional collector who dislikes the vulgarity of Art’s commercialisation, but investors looking to diversify portfolios and treat it purely as an asset. They provide a number of benefits to both the market and investors. They bring new capital into the market by raising money from investors outside the market. This provides additional liquidity to the market, fosters continued price appreciation and stabilises it in times of economic uncertainty such as we are currently experiencing. From the investor’s perspective, they can benefit from art funds by pooling their funds with other investors, thereby diversifying their art holdings.

A traditional example of a high-level art fund is the London-based Fine Art Group Fund. With over a quarter of a billion dollars in assets, this prestigious firm’s funds have multiple ten-year, five-year, and shorter-term maturities devoted to major artistic periods like Old Masters, Modernist, Impressionist and Contemporary. Catering more towards middle-market investors, Arthena is an art fund that was originally launched as an equity crowdfunding platform for purchasing art. It looks at the intangible, contextual factors of an artwork, like the year of its creation and the artist’s career and combines that with contemporary financial analysis.

Fractional ownership

The market’s shift online has seen the development of new digital platforms
seeking to establish new tech-based infrastructure. Fractional ownership is a fairly new concept which allows investors to purchase a fragment of an artwork using blockchain technology. There are several firms competing to establish themselves and Maecenas is far ahead of the competition.  Boasting a 10.6% on total returns; they give their clients the opportunity to own a percentage of art by world famous artists including Picasso, Monet and Warhol.This is but one example of the rapidly growing online sector bringing dynamism and innovation to a market steeped in ‘old school’ traditionalism.

Between contemporary tech-led start-ups, traditional galleries and art investment funds, there have never been more avenues for collectors and investors to enter the art market. Despite the uncertainty, Art has continued to show its worth as an asset, and there may very well be exciting times ahead.

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