Art as an Investment

The Financial Times Advisor recently posted on the state of investing in art, quoting the Deloitte Fine Art and Finance Report.  The FT reports purchases as investments in fine art has reach the $1.3 billion level. Investors are looking for new assets to invest in to diversify more legacy investments while adding new passion investments.

With more interest in the art market from the financial sector, with growing collectors and investors, adding in interest from financial advisers, accountants, tax regulations as well as insurance, storage, shipping and security, it is a good time to be an appraiser.

The FT reports

Investment in the art market has reached $1.3bn (£846m), according to a report from Deloitte on art and finance. Buyers worldwide are increasingly acquiring collectibles from an investment viewpoint, which will most likely increase the need and demand for professional and wealth management services relating to the management and planning, preservation, leverage and enhancement of these assets, the report added.

Alternative investing has become popular as investors look to diversify risks and gain higher yields, according to a feature on investing in passions in Money Management’s November issue.

Investors tend to prefer these assets because their intrinsic value cannot be eroded by inflation fluctuations. Others look at them as a means to diversify or to fulfil a personal passion.

“The most dramatic trend over the past decade has been the emergence of the (former) third world consumer,” Philip Staveley, partner at Amphora Portfolio Management Wine Investment, said. “As emerging economies develop and produce millionaires and billionaires, these newly rich aspire towards western luxury products, whether this be Rolex watches, Lamborghinis, or indeed, fine wine,” he continued. Analysts have said that this starts as a lifestyle but individuals then look at these collectibles as a form of investment.

While collectibles can include everything from fine wine to artwork, comic books to jewellery and classic cars among other things, assets such as wine and art see growing popularity.

The Mei Moses Fine Art index, a benchmark established to reflect art market trends, reported a negative performance between 2012 and 2013. The Deloitte report on Art and Finance points to a slowdown in the growth of art funds in recent years. According to the survey, only 8 per cent of wealth managers are currently offering advice on art investment funds, down from 26 per cent in 2012. The survey also shows 67 per cent of collectors see art investment funds as a diversification tool and a way of gaining broader exposure to the art market, while 61 per cent said art funds could offer professional management with strong investment discipline and a focus on value.

Meanwhile, Liv-ex Fine Wine 100 index, which represents the price movement of 100 of the most sought-after fine wines shows performance has been on the decline since 2011. A monthly index, it is calculated using the Liv-ex Mid Price for each component wine. Analysts at The Wine Investment Fund (TWIF) believe fine wine prices can shrug off the travails of the world economy and China in particular. A report from London-based research group Wine Intelligence found that the global sales of fine wine are no longer as skewed to Asia as they were.

However, these investments come with a lot of risk and many analysts have warned of fraudulent investment firms posing as investors in collectibles. A number of other risks such as market and liquidity pose a challenge to this sector. It is important to carry out due diligence before deciding to invest in any of these funds.

Source: The Financial Times