Weekend Essay: Investing in art

I wrote a Weekend Essay in March about whether Chanel handbags are a good investment.

Unsurprisingly, the response from certain readers was scathing. One even said: “Such matters are not worthy of a serious financial publication.”

So I was pleased when my colleague Jean-Baptiste Andrieux sent me an article in Bloomberg Business which said something very similar to what I had written.

It got me thinking about other forms of investment, which is what has led me to write this Weekend Essay.

For as long as I can remember, I’ve loved art. It was my favourite subject at school. I used to spend hours in the art room, working on my pieces. I found it relaxing in a way nothing else is.

I also enjoy spending time in art galleries, getting lost in the paintings. My favourite is the National Gallery, but I like the Tate Modern as well – it holds some really good exhibitions. What I’ve never really done, though, is consider art as a long-term investment.

But over the past few decades, alternative investments like art have become increasingly popular, it seems.

“Alternatives have become a very important allocation category for pension funds,” says Tamer Ozmen, founder and chief executive of Mintus – an online art investment platform offering shares in “exceptional contemporary art”.

It’s widely known that certain artworks are worth a lot of money. One of the most expensive artworks ever sold at auction was Pablo Picasso’s Les Femmes D’Alger, which fetched an eyewatering $179.3m. In 2018, Christies’ auction of ‘The Collection of Peggy and David Rockefeller’ set a record high for the most valuable private collection when it sold for $833m.

So, unless you’re a billionaire, the likelihood of you spending your money on such a thing is pretty slim. But what if you could own part of it?

Unlike investing in so-called ‘collectables’, such as watches, cars, whiskey, wine, and designer fashion, which tend to fetch a couple of thousand pounds, the value of famous artworks puts them into the high-value category. And with around $65bn in annual transaction volume, it represents a massive asset class.

“From a financial sector point of view, real estate and private equity funds are the two very big alternative assets. But in the past 10 years or so, art has started to make it into that category,” says Ozmen.

From 1986 to 2020, the percentage allocation of alternative investments like art in pension portfolios shot up from 5% to 25%. But the contribution that 25% makes to a portfolio is almost equal to the traditional investments which make up the remaining 75%.

Apart from the historical headline-grabbing returns, Ozmen points out that contemporary art has also shown a low correlation to traditional asset classes, such as equities, as shown in the graph above. Warhol artworks have apparently made average annual returns of 12.5% over the past four decades.

The value of the global art market is estimated to be $1.7trn. And, within that, the annual volume is about $65bn. It’s a huge market, more than half the value of the private equity market (about $2.5trn).

One major perk of art as an asset is that its value doesn’t rise or decline with the stock market, says personal finance help website Money Under 30.

Over the past 40 years art has always done well against inflation, because it doesn’t just go up and down like stocks and bonds do. This is an especially pertinent point considering the current market turmoil we find ourselves in the middle of.

It also makes it a useful addition to a balanced portfolio. In fact, experts suggest individuals should put 4% or 5% of their total wealth into arts. It is highly regarded by a lot of wealth managers and is often seen as a wealth preservation asset class.

Another big draw, and perhaps the most important, is that you get to be part of something. “When you buy stocks, you have no emotion for them,” says Ozmen. When you buy a share in art – which can be purchased for as little as £2,500 pounds – you get to own part of an iconic piece of history.

But, be warned, investors should not expect a big payout from art alone.

“For most people art will be only a small fraction of a well-rounded investment portfolio,” Money Under 30 warns on its website. “Don’t rely on an art investment for steady income.”

And they shouldn’t expect a quick return. Profits won’t happen overnight. Instead, experts recommend a time window of 10 years or more.

Often, art investors will include paintings in their estate planning as assets to pass on to their descendants.

If I ever find I have a spare £2,500, I now don’t know what I’ll do with it… buy a Chanel handbag or a share in an Andy Warhol.

I have, though, now got the urge to raid my art box.