A Fine Art: Investing to Beat Inflation

The alternatives sector is a church wide, ranging from physical infrastructure to music royalties. Fine art has been used as a wealth story for hundreds of years and remains an asset class to beat among the proliferation of other alternatives that have sprung up over the years.

In the equity market, the S&P 500 index lost almost a quarter of its value between January 4 and June 30 this year, while the FTSE 100 index is down 2.5% since the start of the year and the Bank of England expects a recession in the UK to start in 2022 and last until 2024. The British Pound and Euro are both down more than 20 % against the dollar this year.

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By contrast, art continued to perform well in the UK and US, recovering strongly from the biggest art recession in a decade. Investment bank UBS estimates that the global art and antiques market grew 29% to $65.1 billion in 2021.

Art also appeared to be performing well in the UK and US in the first half of 2022, with major auction houses Sotheby’s, Christie’s, Phillips and Bonhams all posting record revenues and plummeting records for some works keys.

by the Belgian surrealist René Magritte the empire of lights sold for £59.4 million ($79.8 million) in London in March, more than tripling its previous record of $26.8 million, while in the same month Franx Marc’s 1913 painting Die Fuchse sold for £42.7 million ($57 million) – more than double the previous best of $24.2 million for a painting by the artist.

Such increases compare favorably to gold, a common alternative asset class to stocks. The price of gold has risen 10.5% from £1,336 to £1,477 so far this year as Britain’s best-known example of institutional investment in art prevails also on the 11% compound annual growth rate that the Fancy Color Research Foundation claims for pink. diamonds since 2008.

Investing in art has a very long history, but the interest of traditional professional investors in this asset class is more recent. In 1974, as Britain sought to save electricity following the OPEC oil embargo and industrial action by coal miners and railway workers by introducing a three-day working week, and with runaway inflation paralleling our current situation, the British Rail Pension Fund has decided to invest in art. .

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Going in a direction that would see it invest £40 million – around 3% of its total holdings at the time – in 2,400 works of art, the fund embarked on a partnership with Sotheby’s in what the Encyclopaedia Britannica calls it the “first very large-scale and systematic attempt to treat art as an investment vehicle”.

The results were strong, with an annual return of 13% generated between 1974 and 1987 – a period in which UK inflation ranged between 3% and 17% and the S&P 500 index generated a return of 12%.

Although BR’s portfolio ranges from Chinese porcelains to African tribal art, Old Masters and Limoges enamels, his earnings come primarily from 25 Impressionist paintings.

Since then, art’s outperformance rate against some leading benchmarks has increased. According to data from Live Art, the art market has outperformed the S&P 500 by 240% since 1986.

There is evidence to suggest that art investments are resilient to periods of high inflation, and splitting now allows investors to allocate a smaller portion of their portfolios to the asset class.

It is clear that, like listed companies, not all contemporary arts are created equal. Like any investment, investors should ensure they have the expertise and information to access this fascinating but often complex asset class.

Investments in the works of Andy Warhol and George Condo outperformed the S&P 500, Nikkei 225 and FTSE 100. While traditional assets, such as stocks and fixed income, face a difficult outlook, modern and contemporary art can offer an effective hedge against cyclical downturns. People are successfully investing in gold, whisky, classic cars and music royalties. Now it can be part of a diversified portfolio and, with a proven ability to outperform, why not consider contemporary fine art?

Tamer Ozmen CEO of Mintus

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