Drucker: Should art be considered an asset class?

26 November 2012 | By Vanessa Drucker

Art makes for iffy returns, despite whatever the alternative investment crowd proclaims. The major November auctions in New York delivered “bipolar” results, according to the Mei Moses advisors, with only one standout success: the post war and contemporary evening sales produced compound annual returns of 15.3 per cent, versus 6.9 per cent in the S&P for the same holding period. Yet returns for all lots, including impressionists, at Sotheby’s and Christie’s over ten days, provided a paltry 6 per cent, compared to 6.7 per cent in the S&P.

Notwithstanding, art is a financial tool, according to an expert panel moderated by behavioral economist David Adler at New York’s Museum of American Finance. Adler kicked off the discussion with reference to the British Rail Pension Fund’s experience in art investments in the 1980s in an inflationary environment. Only a few items, such as Monet’s Santa Maria della Salute, actually outperformed equity markets during those years.

Last week’s “Art and Economics” discussion explored whether art has indeed become an asset class or even perhaps a currency in its own right, despite high tax and transaction costs, like auctions. Andy Augenblick, president of Emigrant Bank Fine Art Finance, described its lack of correlation, citing, by example, a comparison of Old Master prices to gold prices. He noted, however, that certain artists - like Warhol - are avidly collected by the financial community itself, which can lead to correlations with the fortunes of bankers.

There is no question that artworks serve financial functions, such as by providing collateral for loans. But liquidity remains a thorny issue. How do you mark-to-market? Collectors are a notoriously fickle lot and tastes change rapidly. Another panel member, Sotheby’s Lisa Dennison, observed that even retrospective museum shows may not further an artist’s salability. When a blockbuster show becomes popular, owners hasten to sell, leading to an oversupply.

Augenblick noted that “global support” is instrumental. Once a particular artist becomes collected worldwide - think Picasso or Giacometti - an explosive tipping point is reached, creating liquidity. He added that Chinese buyers in particular are seeking global trophies that may be less subject to the manipulation they have witnessed in their own local market.

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^{Vanessa Drucker is the American Editor of Fund Strategy, based in New York City. She has worked as a financial journalist for 20 years. In the 1980s, she practiced banking and securities law on Wall Street, and is the author of two business novels. Vanessa can be contacted at vanessa.drucker@centaur.co.uk.}

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