There are ‘unique’ opportunities in art, says asset manager
Jean-Michel Basquiat’s Pyro is presented to the press during the Sotheby’s Frieze Week Contemporary Art Auction Preview at Sotheby’s on September 27, 2019 in London, England.
Tristan Fewings | Entertainment Getty Images |
LONDON – Contemporary art as an investment has outperformed the S&P 500 over the past 25 years, and one asset manager says it still presents a “unique” opportunity for investors.
Contemporary art has offered an annual return of 14% for the past 25 years, as of December 2020, compared to an annual return of 9.5% of the S&P 500, according to the Citi Global Art Market chart, cited by the company investment in fine art masterworks.
Looking ahead, John Plassard, deputy director of asset manager Mirabaud, told CNBC’s “Squawk Box Europe” Thursday that there was “a lot of growth to come” in contemporary art.
He described it as “an asset that appears to have stood the test of time and escaped the grip of volatility” and said it was an “often misunderstood investment theme” in a note at the beginning of the month.
His arguments in favor of the asset class include the fact that contemporary art has seen fewer periods of losses than global stocks, gold, and the US real estate market.
During the last quarter of a century, contemporary art – defined as works created from 1945 onwards – recorded losses in only 4% of cases, over investment periods of 3 years, according to the analysis. cited in Mirabaud’s note. In contrast, the S&P 500 and global equities were in the red 24% of the time, US housing lost 20% of the time, and gold fell 40% of the time.
Plassard also pointed out that contemporary art has a low correlation with more traditional investments, which means that it is unlikely to rise and fall with these assets.
“Art also has a low correlation with other classes, so it’s a one-time investment and you have minimal losses – if you pick the right one, of course,” he told CNBC.
And because it’s a real asset, it can offer a level of protection against the risk of rising inflation, Plassard added, which has been a major concern of investors lately.
Overall, he said contemporary art offers a way to diversify investments, but comes with “risks and costs depending on the means chosen to acquire a work.”
The cost of insurance can be high, for example, and there is also the risk of counterfeiting, theft or damage. Additionally, the value of a work of art can fluctuate depending on whether the artist stays in style.
Ways to invest in art
There are several ways to invest in space, according to Plassard. First, investors can simply buy a piece of contemporary art – although this can be tricky as buyers either have to bet on unknown artists or pay dearly for a more established name.
Art funds are another option, Plassard said, which allow investors to own parts of works of art. For example, Masterworks is a fund manager who acquires works of art at auction and then sets up a holding company to store, promote and resell the pieces at a profit. It registers the holding company with the United States Securities and Exchange Commission and issues shares, Plassard explained.
Blockchain technology has also created the tokenization of art, Plassard said, alluding to non-fungible tokens (NFTs) which can offer investors another way to purchase part of a work of art.
Artworks can be “defragmented” into thousands of digital tokens and then issued to buyers, he said, adding that digitizing the artwork into tradable tokens makes it more of a liquid asset. NFTs exploded in the first quarter of the year, with total token sales exceeding $ 2 billion in the first quarter.
Investors can also buy shares in companies that provide art market information and sell works online, such as ArtMarket. However, Plassard specifies in the note that these companies “face very strong competition, which explains among other things their sharp declines”.
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