Investments in the Art Market

by Anna Gayduk
Tuesday, November 30, 2021
Investments in the Art Market

Investing in the art market has many specific features and principles, and success is most often possible by implementing a carefully thought out and rational strategy

The annual growth and development of the art market and its infrastructure stimulate the attraction of new participants to it and an increase in interest in art objects as investment assets. This process is also influenced by the increase in the number of wealthy individuals, as the number of billionaires around the world has more than quadrupled since 2000, with most of them spending part of their funds on purchasing art objects.

According to the report of the international art brand, in 2018 the growth rate of the turnover of the world art market reached 6% compared to 2017 and amounted to $67.4 billion.

In 2017, the price of the lot for the first time in history reached $450 million. The use of art objects as alternative sources of investment is spreading not only among private investors but also among corporations, as well as among some states: UK, USA, UAE, Qatar, and others. Thus, the total value of the UK art collection is $3.5 billion, and Qatar annually allocates up to $1 billion just for the purchase of contemporary art.

When talking about art in the context of investment, it is important to determine the fair price of work and predict its future change. The history of the development of the art market shows that information throughout its existence was a key factor in determining the value of the work. The modern calculation of the approximate price of a work of art comes down mainly to content analysis of data that contains a mention of a particular work.

Today, the art market is characterized by a variety of investment methods, which include, in particular, investment funds that capitalize on the art market. Such investment funds are a relatively new type of collective investment. These funds operate similarly to traditional hedge funds. So, the minimum investment in the background is from $500 to $1 million. For this amount, the experts of the fund form a portfolio of assets, which implies private or fractional ownership. In the case of private ownership, the portfolio usually consists of several art objects, which, in the opinion of fund experts, are the most profitable.

The second option implies the ability of several investors to own one asset. Typically, such portfolios of assets bring in from 5 to 10% per annum. The main difference between such funds from traditional ones is that the primary accumulation of assets is carried out not only at the expense of money but also at the expense of cultural values, the minimum share of which should be 40%. The net asset value changes based on the results of regular revaluation of assets based on the results of auction sales and exhibition activities of funds. The greatest efficiency of investments in such funds can be obtained subject to long-term investment (from 7 to 10 years).

The dynamics of the group of indices (WAAI, C50, AMC, ST 500, ARTIMX) that are used to estimate the value of works of art show that art is a fairly competitive way of long-term investment. Moreover, they indicate that the right investment strategy can bring significantly more income than just investing in the art market in general, but even so, the investment can turn out to be more profitable than the traditional financial market.

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