Art Market: A Bubble in the Making - Penta - Barrons.com
Art Market: A Bubble in the Making
A Whale of a Tale
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By Richard C. Morais
Zou Chuan-an
At a time when governments around the world are debasing their currencies, asset classes that have a good historic record of retaining value during periods of political and financial upheaval become ever more valuable to investors. Art isn’t quite gold. But it’s up there.
The art market again trumped stocks in 2011 . The Mei Moses All Art Index rose 10.2% in 2011, outperforming both the MSCI All Country World Investable Market Index, down 10.5% in 2011, and the S&P 500, which ended the year exactly where it began. That caps a decade of the art market outperforming the S&P 500. The art market has been nothing but resilient, recovering from the traumas of the Great Recession and other shocks far better than equities markets.
Rarely spoken about, but equally attractive, is the fact the U.S. Federal government doesn’t have a record of intervening in the art market – in most other markets the Feds have, during one period of history or another, crashed the party. (The governments of a few countries, like Britain and France, do on occasion lay claim to paintings sold at auction they want to prevent from leaving the country.)
None of this has gone unnoticed. Last month, Deloitte Luxembourg and ArtTactic produced the 2011 Art & Finance Report: “The lack of institutional interest in art as an alternative investment, and the reluctance of private banks and wealth managers to get involved in something as esoteric as art, have often been used as arguments as to why this market will not evolve beyond its current form. However, this report suggests that this could change in the next two to three years.” Private wealth managers are, in short, “showing an increasing interest in offering wealth management services related to art and collectibles.”
In actual fact, the art industry has for some time been gradually morphing into a serious financial market. The U.S. and European art market for post-war and contemporary art increased from $254 million in 2000 to $2.1 billion in 2011. Institutionally-run art investment funds, by conservative estimates, rose to $960 million in 2011, up from $760 million in 2010.
More coming: 39% of the 19 private banks surveyed by Deloitte are looking “at providing art investment fund related products or services to their clients in the next two to three years.” A vast majority (83%) of the private bankers are in favor of including art and collectibles in traditional wealth management.
So the infrastructure to support a new branch of the wealth management industry is quietly getting built. As Luxembourg took the lead in the European mutual fund business, so, too, it is quietly putting down stakes in the ever more sophisticated art-finance industry. SplitArt is, for example, a Luxembourg-based art exchange in the process of acquiring regulatory approval, which, if successful, will make it the world’s first regulated art exchange.
On the other side of the globe similar developments are underway. The art fund and art investment trust market in China hit $320 million in 2011, a 65% increase over 2010, with another $300 million of art funds in the pipeline. There are now six art and cultural exchanges in China, with another 30 exchanges reportedly in the planning stage. All this money sloshing about the Chinese art market partly explains why the Mei Moses World Traditional Chinese Works of Art Index was up 20.6% last year, the best-performing art market in the world.
Which gets us precisely to the dangers of all this. As soon as art turns from a passion acquisition into an investment class, the economics of the art industry changes and, I would argue, the seeds of its destruction are planted. Cheap and ever more debased paper which investors are desperately trying to convert into hard assets, and a finite supply of investment-grade art, are all the perfect conditions you need to create a world-class asset bubble.
When I brought my concern up with the art dealer and financier, Asher Edelman, he astutely pointed out, “We already have an asset bubble with about 50 artists.”
Consider Roy Lichtenstein’s 1961 painting of a man looking through a peephole, which sold for $43 million in November. The art collecting billionaire, Eli Broad, told a reporter at the time of the sale, “People would rather have art or gold instead of paper money.”
Buyer beware. The art ride might be fun for a while, but as our recent financial history has taught us, when bubbles burst, it’s never a pretty painting.
A Whale of a Tale
EMAILPRINTPERMALINK
YAHOO! BUZZ
STUMBLEUPON
DIGG
FARK
MYSPACE
DEL.ICIO.US
Text Size
By Richard C. Morais
Zou Chuan-an
At a time when governments around the world are debasing their currencies, asset classes that have a good historic record of retaining value during periods of political and financial upheaval become ever more valuable to investors. Art isn’t quite gold. But it’s up there.
The art market again trumped stocks in 2011 . The Mei Moses All Art Index rose 10.2% in 2011, outperforming both the MSCI All Country World Investable Market Index, down 10.5% in 2011, and the S&P 500, which ended the year exactly where it began. That caps a decade of the art market outperforming the S&P 500. The art market has been nothing but resilient, recovering from the traumas of the Great Recession and other shocks far better than equities markets.
Rarely spoken about, but equally attractive, is the fact the U.S. Federal government doesn’t have a record of intervening in the art market – in most other markets the Feds have, during one period of history or another, crashed the party. (The governments of a few countries, like Britain and France, do on occasion lay claim to paintings sold at auction they want to prevent from leaving the country.)
None of this has gone unnoticed. Last month, Deloitte Luxembourg and ArtTactic produced the 2011 Art & Finance Report: “The lack of institutional interest in art as an alternative investment, and the reluctance of private banks and wealth managers to get involved in something as esoteric as art, have often been used as arguments as to why this market will not evolve beyond its current form. However, this report suggests that this could change in the next two to three years.” Private wealth managers are, in short, “showing an increasing interest in offering wealth management services related to art and collectibles.”
In actual fact, the art industry has for some time been gradually morphing into a serious financial market. The U.S. and European art market for post-war and contemporary art increased from $254 million in 2000 to $2.1 billion in 2011. Institutionally-run art investment funds, by conservative estimates, rose to $960 million in 2011, up from $760 million in 2010.
More coming: 39% of the 19 private banks surveyed by Deloitte are looking “at providing art investment fund related products or services to their clients in the next two to three years.” A vast majority (83%) of the private bankers are in favor of including art and collectibles in traditional wealth management.
So the infrastructure to support a new branch of the wealth management industry is quietly getting built. As Luxembourg took the lead in the European mutual fund business, so, too, it is quietly putting down stakes in the ever more sophisticated art-finance industry. SplitArt is, for example, a Luxembourg-based art exchange in the process of acquiring regulatory approval, which, if successful, will make it the world’s first regulated art exchange.
On the other side of the globe similar developments are underway. The art fund and art investment trust market in China hit $320 million in 2011, a 65% increase over 2010, with another $300 million of art funds in the pipeline. There are now six art and cultural exchanges in China, with another 30 exchanges reportedly in the planning stage. All this money sloshing about the Chinese art market partly explains why the Mei Moses World Traditional Chinese Works of Art Index was up 20.6% last year, the best-performing art market in the world.
Which gets us precisely to the dangers of all this. As soon as art turns from a passion acquisition into an investment class, the economics of the art industry changes and, I would argue, the seeds of its destruction are planted. Cheap and ever more debased paper which investors are desperately trying to convert into hard assets, and a finite supply of investment-grade art, are all the perfect conditions you need to create a world-class asset bubble.
When I brought my concern up with the art dealer and financier, Asher Edelman, he astutely pointed out, “We already have an asset bubble with about 50 artists.”
Consider Roy Lichtenstein’s 1961 painting of a man looking through a peephole, which sold for $43 million in November. The art collecting billionaire, Eli Broad, told a reporter at the time of the sale, “People would rather have art or gold instead of paper money.”
Buyer beware. The art ride might be fun for a while, but as our recent financial history has taught us, when bubbles burst, it’s never a pretty painting.
