These
days the question, I get from buyers is “if the Art has return value”. Art has
been emerging as a new asset class for the well-diversified portfolio. The
reported returns are enough to catch anyone's eye: the index of fine art sales,
used by art consultants to sell art funds, shows an average annual return of
10% over the past four decades.
Art has long been considered an investment of passion,
one that not only offers aesthetic pleasure but the potential for economic
benefit. Only recently has art investing been viewed through the lens of modern
portfolio theory and considered as a potential alternative investment in a
portfolio of assets. Though research continues to shed more light on what has
been historically an opaque market, studies show that art can offer long-term
return potential that is uncorrelated with other asset classes.
Market paradigms have shifted dramatically over the last
several decades, as newly created wealth in emerging markets such as China,
Russia and the Middle East has increased the number of participants in the art
trade, giving the market greater resiliency. Undeterred by a rough economic
environment in recent years, collectors globally are paying record sums for top
works.
To understand what drives the art market, it is important
to recognize the main motivations behind art buying. Art is unique as an
investment in that there are many non-monetary investment reasons behind
collecting. First, there are intangible values associated with having and
enjoying a piece of art. Art provides collectors with social status and prestige—
an outlet to signal their wealth or lifestyle to others. There are also the
philanthropic benefits of purchasing art, from financing up-and-coming artists
to building a collection to preserve cultural heritage. Chinese buyers, for
example, have been repatriating cultural assets that have been in the hands of
Western owners, which has contributed to a rise in values of Chinese works in
recent years.The obvious monetary benefit is the opportunity to gain a return
on investment, though investors also recognize art as a way to store value, to
hedge inflation and to diversify their portfolio allocation.
People try to compare between art rentals and purchase. We
should look at the benefits while we compare. An art object yields additional
benefits if it is owned (and not just rented) because the art object’s ‘aura’ is
there with appropriated. Consequently, neither are potential hirers willing to
pay ‘market’ rents (covering capital cost, insurance, etc.), nor can present
owners be sufficiently compensated by such rents for foregoing the art object
when it is rented out. It may be argued that this holds for private collectors
but not for galleries and museums. However, most owners of private galleries
are art lovers themselves and often behave more like private collectors than
like purely commercial enterprises. Indeed, many major gallery owners have a
sizeable private collection of their own.
Museums and galleries with very few exceptions only
exchange art objects among themselves, but do not unilaterally rent out. This
leaves purely commercial galleries - usually organized in chains - where the
owners are not subject to the ownership anomaly. We expect and predict that
such firms will rent out paintings and other art objects in the future but that
this market will remain unimportant compared to the major galleries where
important and expensive art is bought and sold. Thus, the art rental market is
not likely to inform us about the quantitative aspect of the psychic benefits
of art.References:
The Art of Investing in Art. (2015). Retrieved from https://www.jpmorgan.com/pages/jpmorgan/is/thought/magazine/3Q2013/art
The Art of Collecting an Art. (2015). Retrieved from http://www.thrillion.co/#!art/c136u
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