Monday, July 6, 2015

Art Return Value

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.

The Art of Investing in Art. (2015). Retrieved from
The Art of Collecting an Art. (2015). Retrieved from!art/c136u

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