Investing in Art

The other day the Wall Street Journal ran a good Q&A with some art professionals on investing in art.  Sorry to say they did not include any appraisers, but they did include

  • Michael Plummer, a partner in New York City-based ArtVest Partners LLC, a provider of art-market investment advice 
  • Constanze Kubern, a London-based art consultant and former manager of an art investment fund
  • Philip Hoffman, chief executive of London's Fine Art Fund Group
  • Kathryn Graddy, an economics professor at Brandeis University in New York, whose research focuses on art markets
The Wall Street Journal reports on investing in art
THE WALL STREET JOURNAL: Does investing in art provide solid returns? If so, over what period?

MR. PLUMMER: We tell clients that they should target [returns] in the midteens, net of fees and expenses, but there is not yet a lot of evidence that this can be easily achieved, in part because the art-fund industry is only 10 years old.

MS. KUBERN: As a rule of thumb, 8% annualized net return over a minimum holding period of five years is a realistic figure.

MR. HOFFMAN: It is almost impossible to say what a reasonable return on an art work would be as there are so many variants tied to each piece and the conditions of its sale. I can, however, confirm as an example that a Frank Auerbach painting we purchased in 2005 for $1.1 million sold in 2006 for $2.3 million. We generally look for annual net returns of 7% to 12% for our investors.

MS. KUBERN: I agree, but unfortunately one piece does not represent an entire collection, nor does it give any indication on what investors' returns are after expenses and fees are deducted. Art is a high-risk investment and, as with most other investments, past performance is not indicative of future results.

PROF. GRADDY: A number of economists have estimated the returns to art over a very long period. Overall, these estimates range from about 1% to about 5% real returns. For example, one of the earlier studies, by William Baumol, estimated the real returns from 1652 to 1961 to be 0.6%. William Goetzmann estimated the real returns from 1716 to 1986 to be about 2% in real terms, and Jianping Mei and Mike Moses estimated real returns from 1875 to 2000 to be 4.9%. Clearly, there is not a lot of consensus on long-run returns to holding art, other than that long-run real returns are less than investing in stocks. The estimated returns vary because of different periods of investment studied, different samples of art used during these time periods, and different estimation methods. In addition, returns to art can be highly variable, and can differ vastly from this number over any 20-year period. Most studies have shown a relatively low correlation of art returns with stock returns.
Source: The Wall Street Journal

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