Beyond its emotional and intellectual value, we believe art is a real and tangible asset that appreciates over time. It has proven to achieve attractive returns, with low volatility and low correlation with respect to equities, which in turn helps to diversify an investment portfolio while reducing risk.
Art as an asset
Benefits
Financial
Low/negative correlation with equity
Low cost of maintenance
Hedging possibilities
Financial "antifragility"
Global market
High returns
Portability
Low volatility
Grows tax free
Arbitrage opportunities
Diversification possibilities
Does not depreciate but can be depreciated
Cultural
Estate planning legacy
Defines cultural standards
Patrimonial qualities
Aesthetic qualities
Intellectual qualities
Unique asset
Limited asset
Emotional qualities
Individual/national identity
Aesthetic awareness
Builds historic memory
Enriches and improves quality of life
Peace of mind
High art is the perfect instrument for asset protection from frivolous lawsuits, even better than gold, certificates or real estate.
Hedge against all odds
High art’s inherent value has a proven track record for constant appreciation. It is highly uncorrelated to financial markets and macroeconomic effects, and its value is invulnerable to any financial crisis, no matter their length or severity. Even in war-like scenarios, art is a perfect hedge against all odds when everything else is worthless or illiquid. There hasn’t been a time in history, over 500 years when a Leonardo hasn’t incremented its value. In contrast, the permanence of the likes of Enron or Lehman Brothers are not guaranteed. Even countries have ceased to exist.
Capital preservation
Should bank deposits be at risk, you may want to consider allocating some resources in safe harbors. Equities and other financial instruments are in a never-ending bubble? debt instruments are not entirely risk free and the yield is zero; commodities are a gamble of nature and other unpredictable forces; real estate can potentially dig into your investment if rents don’t come in. And none of the above combines asset protection and preservation like a Picasso does.
Minimal expense
Art grows tax-free and the cost of caring for an art portfolio is less than US$1,800 per million per year. In a fund, the expense ratio is as low as < 0.8% AUM, among the lowest in the alternative investment industry.
Positive returns
Art appreciation is supranational, and art the most valuable and coveted cultural object in existence. The rich are not only getting richer but also growing in numbers, and fascinated by art. The Picasso Artprice index has grown 547% in the last 20 years in the painting category, compared to the 179% growth on the S&P 500 in the same period.
Art market in numbers
Close to 5 billion USD worth of Fine Art sold at auction in the first half of 2023. (Artnet)
Despite inflation and higher interest rates, the Artnet Index of Fine Art exceeds the S&P 500 index: fine art returns grew a nominal 4.2% compared to a 6.6% loss for the S&P 500 since early 2022. (Art Tactic Deloitte)
Global art sales increased by 3% in 2022 totaling in estimated $67.8 billion worth of art sales and surpassing pre-pandemic heights. (Art Basel UBS)
While the higher end (US$1 million-plus artworks) of the impressionist, modern and contemporary auction market saw a 9% year-on-year decline in sales in the first six months of 2023, it is significantly lower than the 31% decline in the overall art market. This decline is largely driven by lower supply of top-end lots. (Art Tactic Deloitte)
After a significant decline in sales during the pandemic, the US art market has seen one of the most robust recoveries of all the major markets. From a pandemic-induced low in 2020, sales bounced back in 2021, increasing by just over one third in value to $28.0 billion. Growth continued in 2022 with a further increase of 8% year-on-year to $30.2 billion, its highest level to date. (Art Basel UBS)
Total auction sales of Old Masters, Impressionist, Modern, Post-War and Contemporary Art at Sotheby’s, Christie’s and Phillips, ended up at $7.5 billion in 2022, up 14.7% from 2021 and a historic high for these five collecting categories. (ArtTactic)
Top selling artists since 2015: Pablo Picasso (US$3.2 billion), Claude Monet (US$1.89 billion), Andy Warhol (US$1.81 billion), Jean-Michel Basquiat (US$1.62 billion) and Gerhard Richter (US$1.18 billion). (Art Tactic Deloitte)
The low volatility of art was accurately demonstrated during the 2008 recession, when art indexes dropped 4.5%, while the S&P abruptly dropped 37.5%.