Ars Longa, Vita Brevis: Art as an Asset Class
Women in colorful cashmere sweaters and men in skinny chinos and funky, acrylic-frame glasses make the pilgrimage to wander a maze of white-walled gallery booths every year for New York City’s annual Armory Show. The Armory is just one of hundreds of “art fairs” offered–such as Art Basel, Frieze London, or Expo Chicago–luring attendees to arrive in droves to scour each year’s crop of the finest art. While some attend out of pure appreciation for the artistic talent on display, many are there on business: hunting for their next potential investment.
According to the 2022 Global Art Market Report from Art Basel and USB, the global art market reached $65.1 billion in aggregate sales in 2021, growing 29% from 2020 (McAndrew 2022). In 2021, art auction powerhouse Sotheby’s reported that the number of its buyers under 40 had increased by 187% (Reyburn 2022). In the first seven months of 2020, a report from Citi on the global art market revealed that art outperformed 10 major asset classes, including hedge funds and real estate (Citi GPS 2020). Those chinos-and-cashmere-wearing art fair attendees clearly have figured one thing out: The art market is a powerful investment class to be taken more seriously than just a collector’s aesthetic hobby.
Art investments represent a tangible means for holding wealth, unlike stocks and bonds. It presents a unique opportunity for holding and accumulating wealth as a physical asset imbued with personalized aesthetic value. As a tangible asset, a work of art’s value isn’t tied to the stock market’s performance and can be a good hedge against economic downturns. Being currency neutral, art investments can also buffer against the effects of inflation. Furthermore, as art is more independent than other financial instruments within an investment portfolio, it acts as a stabilizing diversification force and helps to protect portfolios during economic downturns.
Though no investment is entirely without risk, contemporary art has shown remarkable resilience. Like blue-chip stocks, blue-chip art is a term that refers to master artists' works with values that are essentially guaranteed to consistently increase. While stock prices may fluctuate in response to market trends, however, the demand for art has grown steadily over the last century, and physical fine art pieces tend to maintain or increase their value over time. Iconic pieces transcend trends and market cycles and continue to command increasing attention and value. Increased access to online data reports means that buyers can feel even more confident in their investments.
Beyond these strict financial assessments, it becomes clear that the best investors in art are those with a passion and eye for it. The unique twist separating art from equities is the importance of the individual’s personality in the selection process. Art is often one-of-one or extremely limited, and each collector (and thus investor) has a responsibility to carefully select the pieces which speak to their values and aesthetic tastes. Of course, this uniquely exclusive nature does significantly contribute to value. As demand for an artist's work increases and their supply remains limited, the value of those works will rise. Many collectors also feel an emotional or aesthetic attachment to the pieces they choose, personalizing the “investment.”
After all, this is an investment that will be uniquely prominent in the everyday life of its collector. A painting hung above the dining table, a sculpture in the backyard, or a series of photographs in the hallway act as both a personal design choice for the collector, and a statement of wealth and taste to their guests. No stock or bond has the same power to effuse its value beyond the initial act of purchase into the daily routine, and accruement of social capital, for its investor.
Furthermore, investing in art allows individuals to contribute to the macrocosm that is the art market: a symbiotic ecosystem of artists, gallerists, auction houses, advisors, critics, and more. In supporting artists, attending exhibitions, and generally fostering creativity, the value of investing in art extends far beyond its financial returns.
However, these advantages have historically been reserved for a privileged group of those in the know; traditionally older, white, generationally wealthy figures have dominated the collecting scene. This is because, in the past, art has been more nuanced than other forms of investment: it requires time to attend fairs, auctions, and gallery openings; to pore over the market offerings; and, to constantly have a finger on the pulse of what may emerge soon. It has traditionally required an art historical education and knowledge of styles, movements, artists, and niche references. Pieces get passed down through generational inheritances, making it far easier to build a robust collection when the starting point is a handful of grandpa’s Picassos. Gallerists and auction houses build relationships with family names and give them privileged early access to the best offerings. For a long time, the art investment world has seen a decisive divide between an in-group and an out-group, resulting in an exclusive environment that is nearly impenetrable for outsiders.
Before the 18th century, fine art was primarily commissioned by wealthy patrons: royalty, aristocrats, and religious institutions. Access to art was restricted to this elite group, and owning art served as a status symbol to display affluence and cultural sophistication. The 18th century saw the establishment of public museums: the first step in increasing accessibility for a broader audience. As trade and commerce expanded, art markets began to form, and the value of artworks became subject to market dynamics. Auction houses, such as Sotheby's and Christie's, emerged in the 18th century, providing platforms for the sale of artworks.
The democratization of the art market can be nascently rooted in the 19th and 20th centuries. The development of printmaking and photography during the Industrial Revolution allowed for the reproduction of artworks, making them more widely available. Art magazines and illustrated publications contributed to the dissemination. The potential for significant returns on art became a reality for a new class of Bourgeois investors. 20th century avant-garde and modern art movements challenged traditional notions of fine art. Pop art and street art engaged with popular culture and made fine art accessible to the average household.
Our digital age has seen the largest strides towards democratizing collecting and investing in art. Online platforms and digital archives make it possible for a worldwide audience to view and engage with artworks. Social media platforms amplify works of non-blue-chip artists to share their work directly with a global audience. Art fairs and public auctions became more prominent, providing opportunities for emerging artists to showcase their work and for new, less established buyers to discover art beyond traditional gallery spaces.
The largest boundary preventing investing in art has always been the steep cost of buying in. Blue-chip pieces can sell for hundreds of millions of dollars: Andy Warhol's iconic 'Shot Sage Blue Marilyn' sold at a Christie’s auction for $195 million in 2022 (Christie’s 2022). The emergence of art funds presents an alternative for those looking to invest in art without acquiring individual pieces. Art funds pool capital from multiple investors to acquire and manage a diversified portfolio of artworks. This collective approach not only lowers the barrier to entry for investors but also spreads risk across various pieces, mitigating the impact of any single artwork's fluctuations in value. Blockchain technology has enabled the tokenization of art, making it possible for investors to buy and trade shares of valuable artworks. In May 2023, Artex Group launched a roughly $55 million initial public offering of Francis Bacon’s 1963 “Three Studies for a Portrait of George Dyer” (Schultz 2023). Shares in the portrait were listed for around $100 a piece on a specially created art stock exchange, giving regular investors the ability to buy and sell shares in a blue-chip artwork on a stock exchange for the first time.
While the democratization of access to fine art has made significant strides, challenges such as economic barriers, representation issues, and the impact of technology on the art market continue to be areas of discussion and exploration. For some art lovers, viewing masterpieces for their investment potential represents a tragic reduction and monetization of the inexpressible value of a work of art. However, perception and access to art as an investment class have evolved over time and will continue to shift with our changing world.
References
McAndrew, Dr. Clare. “The Art Market 2022.” Zurich, Switzerland: Art Basel & UBS, 2022. https://d2u3kfwd92fzu7.cloudfront.net/Art%20Market%202022.pdf.
Reyburn, Scott. “Speculators Win Big with Bets on Young Artists.” The New York Times, 2022. https://www.nytimes.com/2022/02/28/arts/design/flora-yukhnovich-art-market.html#:~:text=According%20to%20Sotheby%27s%20end%2Dof,40%20increasing%20by%20187%20percent.
“The Global Art Market and COVID-19: Innovating and Adapting.” Citi GPS: Global Perspectives & Solutions, 2020. https://www.privatebank.citibank.com/newcpb-media/media/documents/insights/Citi-GPS-Art-report-Dec2020.pdf.
Christie’s. “Andy Warhol’s Marilyn: An Icon of Beauty,” 2022. https://www.christies.com/en/stories/warhol-shot-marilyn-2629a4711b7e41f593e66bb2b33acd8b.
Schultz, Abby. “Artex to Sell Publicly Traded Shares of a $55 Million Francis Bacon Triptych.” Barron’s, 2023. https://www.barrons.com/articles/artex-to-sell-publicly-traded-shares-of-a-55-million-francis-bacon-triptych-b66a749b.