Art as an Asset Class

As many readers of the AW Blog know, I am an advocate of art as an asset and looking at collecting and valuation with an understanding of financial performance.  Forbes has just posted an article on the discussion of art as an asset class.

I believe as appraisers, the more we can connect art to an asset class, the more potential business we can generate with HNWIs, collectors and professionals in the financial management field.

Forbes reports

In 2011 art funds pulled in only around $200 million in new money, with most of this going to funds in China, and ended the year with only $960 million in assets, Deloitte’s art and finance group reports. Artvest Partners, a New York firm that advises wealthy collectors, reckons the market is a bit bigger–more like $1.5 billion to $2 billion as of mid-2012.

Either way, art funds are not just insignificant compared with other financial markets but also a very small corner of the $67-billion-a-year fine art market. Worldwide fewer than 30 art funds are active today, and only a few have attracted more than $50 million in capital. Artvest principal Jeff Rabin estimates half of art funds that are announced never raise enough money to get off the ground.

Even the most successful art funds have yet to prove themselves. The London-based Fine Art Fund Group, which established the first art fund in 2004, controls the biggest chunk of the market, with more than $150 million of assets in five specialized funds that invest in old masters, impressionist, modern and contemporary art, each requiring a minimum $250, 000 investment. It claims an average annual internal rate of return of 20% on artworks sold so far. The Collectors Fund, a $20 million Kansas City?-based fund launched in 2007 to buy American masters, reports an average 28% annual return. Yet Rabin points out that more-difficult-to-sell works may not be disposed of until the end of a fund’s life. “The actual returns when all is said and done are often very different, ” he says.

Source: Forbes