Investing in Art

I missed this NY Times article of a few weeks ago. Given the content is pertinent to our continued postings on art as an asset and alternative asset classes I want to share it.  The article states that many economist do not see art as a an investment class  given that there are too many non financial intangibles which can be factor into the cost of ownership, as well as the opaqueness of the market.

Additionally, the article refers art as an investment author Sergey Skaterschikov noting that no painting purchased for over $30 million has been resold at a profit. I am not sure how that might have been calculated, if it was straight dollars, or based on inflation and opportunity costs (see previous post on calculating art returns).  The article also talks about investing in art funds, but they have not been overly successful. In general, the article states art investment is the territory of ultra high net worth individuals (UHNWIs).

The NY Times reports on investing ins art 

Artwork itself may be a lousy investment, but selling it (and advising on it and being an art-world consigliere) can be pretty profitable. Because each piece of fine art is unique and can’t be owned by anybody else, it does a more powerful and subtle job of signaling wealth than virtually any other luxury good. High prices are, quite literally, central to the signal — you don’t spend $120 million to show that you’re a savvy investor who’s hoping to flip a Munch for $130 million. You’re spending $120 million, in part, to show that you can blow $120 million on something that can’t possibly be worth that much in any marketplace.

Art is often valuable precisely because it isn’t a sensible way to make money. And perhaps as a result, it has become even more valuable of late. Benjamin Mandel, an economist at the Federal Reserve Bank of New York, has been studying the art market because, he says, “it’s a great way to study asset price valuations.” Mandel read reports suggesting that the market was growing at an unsustainable clip. For one thing, prices have gone up far faster than global G.D.P.

But then Mandel realized that we had been looking at the market incorrectly. Fine art, he said, is not really part of the overall global economy. Instead, it’s part of the economy of a small subset of the super-superrich, whom some economists call Ultra High Net Worth Individuals, or U.H.N.W.I.’s. And their economy, unlike ours, is booming. In that alternate world, fine art as a percentage of the economy has stayed stable over the last decade, in part because a flood of new U.H.N.W.I.’s in China, India and other developing nations has entered the art-buying market with great enthusiasm. In 2003, the sales at Christie’s Hong Kong totaled $98 million. Last year, they were $836 million.

Source: The NY Times