Transformation of the Art Market?

Business Insider reports on the transformation of the art market from collectors to investors.  The article references a CNBC interview of billionaire hedge fund manager and collector Ken Griffin.  The article reference the Mei Moses Art Indexes and their important 2002 paper  "Art as an Investment and the Underperformance of Masterpieces". One interesting comment was over the past year sales were moving from the big auction houses to smaller galleries and dealers.  It was also noted the top tier artists where selling well and in demand, while below the top group of artists and recognized works, sales are soft.

Business Insider reports

Ken Griffin, the billionaire founder of the hedge fund Citadel, was collecting art before it was cool on Wall Street.

Now he's concerned that his peers who have jumped into the art market are doing it for the wrong reasons — they consider it an investment.

"The art market is now viewed as a market," he said Thursday in an interview with CNBC's Kate Kelly. "When I started collecting art 20 years ago, it was really a market dominated by collectors. Today we're seeing far more people pursuing art as an investment. I would have some cause for concern around that."

The problem with seeing art as an investment is that it is an opaque market. There's not enough information out in the public to really understand the future value of an asset.

Two professors at New York University's Stern School of Business, Jianping Mei and Michael Moses, developed their own valuation method — the Mei Moses Art Indexes — after writing a paper called "Art as an Investment and the Underperformance of Masterpieces" in 2002.

The idea behind the indexes was to bring more clarity to price discovery by putting sales data in one place.

"Two major obstacles in analyzing the art market are heterogeneity of artworks and infrequency of trading," the paper said. "The present paper overcomes these problems by constructing a new repeated-sales data set based on auction art price records at the New York Public Library as well as the Watson Library at the Metropolitan Museum of Art."

Mei and Moses will tell you that even with the information they have the art market is still super secretive. Their data sets are not close to complete, and they never will be.

What's more, in the past few years sales have been moving away from big auction houses — where there's some transparency —and toward smaller art dealers. That will only make the market more difficult to track.

So what the newbies are doing, according to Griffin, is buying art based on the value of an artist's name, not based on what the buyer loves. That's adding even more price dislocation to the market.

"We're seeing the tier-one artists with their best works setting all-time record highs," Griffin said. "The Modigliani sold last week for $170 million. But we're seeing second-tier artists and second-tier works by the best artists starting to slide down in price.

"I think people should be very hesitant in thinking about art as an investment."

Source: Business Insider