Not too long ago, unless you were especially monied or had expertise, you never really considered investing in art. The average investor generally viewed that realm from a distance, though perhaps with some curiosity. This is particularly true when a six or seven figure sale occurred at some posh auction house. For the last several years however, investors seeking to diversify portfolios have been increasingly considering the art market.
Here’s why art is gaining traction as an alternative investment.
The Issue
It’s been heading this way for a while now, art as an alternative investment. Sure, the art world has always been put on a pedestal, pun unintended, and that won’t change. The difference is that these days it’s a respect that draws people closer, not one that keeps them at a distance, sequestered behind the proverbial velvet ropes.
The transformation is akin to what began happening with commercial real estate two generations ago. Back then, the market was essentially the province of niche investors. At length, though, investing in real estate became a common and widely accepted way to diversify portfolios.
How Popular is Art?
Very, and growing. According to a recent Deloitte survey, 81 percent of respondents said they wished wealth managers included art in their opportunities. That’s a hike of 66 percent over 2017.
What Makes the Art Market so Popular?
Over the past 20 years or so, art has performed better than the S&P 500, returning more than 360 percent. The art class is also largely independent of the stock market. As alternative investments, art offers a hedge against inflation as well as currency devaluation as its value is not markedly affected by global economic conditions.
What’s more, there’s minimal risk of losing one’s principal investment, and there are no mandatory minimums. The market also generally offers favorable tax considerations, as well as portability and possible extra income if physical pieces are lent to exhibitions and such.
Increased Accessibility
The advent of the Internet and other digital technologies made owning art works more readily accessible. Digitization has also improved market transparency, the lack of which would-be investors often pointed to as reason to steer clear. Now, if one wishes to invest in art, risk is diminished because one can easily check and track pricing, provenance and other elements of valuation.
Now you have online auction houses, databases, market data and catalogs, and even fairs. Artists have websites that accommodate reviews as well as many ways to communicate electronically. All of this has helped lessen the intimidation factor among everyday investors.
Accessibility has also given rise to platforms such as the popular online platform Yieldstreet, which permits investment in art through funds or fractional ownership.
What Are Art Funds?
Art funds are privately held entities that produce returns by buying, holding, and selling works of art. Fund managers get a management fee as well as part of any returns the fund brings. Such investments do require patience, as returns won’t be forthcoming for between five and seven years. And, that’s after making capital contributions for some three to five years.
Funds do vary in size, strategies, duration, and portfolio caps, and it’s the fund manager who makes decisions regarding what to purchase and when to sell. So, you need not worry about any of that.
It’s also important to understand that art funds purchase art to sell – not to own. Most such funds have a sell-by date, so you aren’t left in the dark about when – or if — a sale might occur. All art must be unloaded within the fund’s life cycle.
In short, art funds offer pooled buying power and professional management, as well as diversification. These funds enlist specialists to take care of procurement, transportation, and storage, and at the right time, the sale of the art.
What is Fractional Art Investing?
Fractional fine art investing essentially permits investors to buy shares of a group of art holdings instead of purchasing whole physical works outright. The practice renders fine art investing a lot more accessible, especially in this technological age. One can take advantage of an entire array of offerings by emerging, top-shelf, and mid-career artists with Yieldstreet.
So, yes, there are many very good reasons why art is gaining traction as an alternative investment. What’s more, there are several easy ways to get involved.