Investors seek returns in different asset and art investing has a long tradition that stretches to centuries. However, it comes with its own peculiar risks. In the second part of this series, Rankia has asked Rocío Ledesma, Manager at Dextra Corporate Advisors to explain the challenges and opportunities of investing in the so-called “passion investment”.
Rocío Ledesma, Manager at Dextra Corporate Advisors
Rocío Ledesma is a Bachelor of Business Administration with a specialty in Economics by the American University of Paris and a Master in Finance by ICADE.
Ledesma has worked as head of departments responsible for the creation, selection and sale of products for private banking networks. She was Head of Products and Advisory at Andbank and before Head of Products, Treasury, Fixed Income and Private Equity at Banif.
Art as an alternative investment?
Nowadays it is becoming mainstream to talk about Art as an investment alternative. That’s not surprising, after the increase in prices, volume, transactions and number participants that the sector has experienced in recent years coupled with lacustre returns currently offered by traditional financial assets.
According to a report by Art Basel and UBS, sales in the global art market reached 67,000 million dollars in 2018, a rise of 6% than the previous year with an average annual increase being 9% in the last decade (2008- 2018). In this context, and despite its improvement since the crisis, Spain’s share in the global art market barely accounts for less than 1%. According to the biannual report of La Caixa Foundation, Spanish art represents just over 2% of the value of art and antique sales within the EU.
Transparency has improved
Although it is true that it is still difficult to obtain data, access to art market data is growing steadily. There is a growing number of reports, indexes and news that provide transparency and accuracy to prices, allow to calculate returns, correlation and comparison with benchmarks. This data flow makes the art market more attractive and dynamic.
According to Market Research in the last 10 years, the works of contemporary artists have revalued 12.4% on average, surpassing the returns posted by emerging market, commodities and fixed income. James Touzer published in 2016 an article in The Economist in which he showed that the profits of the art market exceeded the American S&P 500 index.
Art as a safe haven
Art is rightly considered a refuge value for several reasons. It goes unaffected depend on government policies, it one of the sectors recovering quickest from a recession and in the event of high inflation it has revalued even above other shelter assets.
Art also benefits from a low correlation with traditional assets and increases portfolio diversification. In 2018, art took third place along with wine, with an annual growth of 9%, behind whiskey (+ 40%) and coins (+ 12%) while real estate and bonds were posting negative returns.
Art or science?
Although many people complain that art investing as unpredictable and say is driven by unfathomable fashions; there is a secret for steady performance. Namely, value creation springs from selecting the right works of art and from doing it professionally. It is not about “betting” on works or pieces that may increase in value but rather on working professionally as portfolio art-manager to add value while minimizing the risk.
The value of the pieces of art is not random. It depends on an action-reaction mechanism set in motion by the offer and demand of numerous players (artists, galleries, fairs, auction houses, curators, critics, dealers … ). Art performance is measurable, transparent and safe. As Seth Klarmam once said, “Success in investment cannot be explained in a mathematical equation or in a computer program, it is an art.”