Art and Lots of Money: What to know

This past week NYC hosted the Antiques Fair at the 67th street armory and the Ceramics Fair at the National Academy of Design.  There were also simultaneous high end sales at Christies and Sotheby’s to coincide. The events brought out not only art collectors, but also art advisors buying for their clients, some of which were high net worth individuals (HNWI). Art advisors buy art for HNWIs to smooth out the overall return of their investment portfolios within the ups and downs of specific categories in the art/luxury markets.

However, whether adding art as another asset class is beneficial to return is still a matter of speculation. The British Rail Fund (BRF) used art in its portfolio for 25 years and made an annualized return of 11.3%, which is perfectly respectable, but was not as high as the rest of the BRF’s portfolio.

Today, the BRF does not invest in art as an asset class. Its concerns could have included the cost of storage and insurance for the art or luxury item. In addition, this category has no dividends or income like stocks and bonds. Moreover, they cannot be disposed of rapidly. They are only worth what someone will pay for them and the market can be very thinly traded. Therefore, valuing art/luxury items can be speculation more than a solid determination.

A recent research paper by RFA Campbell, however, challenges this concept. It suggests that art is worth considering as an asset class in a HNWI’s investment portfolio. She looked at art as yet another alternative asset class and treated it like real estate, commodity futures, private equity and hedge funds. Each of these can be used to broaden diversification within an investment portfolio. She focused on bear markets because it is there that the benefit of diversification is most needed. The author used data from both the Art Market Research and Mei Moses All Art Index that compare repeat sales prices of particular items at auction.

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