Is art really a good investment?
Like many other art world outsiders, when I began working in the art market in 2005, after a decade of working with investment banks, private equity firms, stock exchanges and hedge funds, I was convinced that the rules of these financial players could be applied fairly easily to art, to produce a more efficient system of trading. Why couldn’t art be commoditised?
Nearly ten years later, I still hold true to some of my initial opinions: there is no reason for the art market to be as secretive and as distorting as a few controlling players would have it, and universally accepted practices—such as including the buyer’s premium (up to 25%) in official auction results but not in the pre-sale estimates, and then comparing one with the other as a measure of success—are at best absurd, and at worst highly misleading to the uninitiated.
I have also learned, however, that there is no universal “art market”: rather, there are several much smaller markets, each of which is comprised of an increasingly limited number of similar items, and which eventually drill down to one, unique object. Even when there are several items that are seemingly identical, such as editions of the same photograph or sculpture, each has a history of ownership, trading or exhibition that separates one ascribed value from another. Art is, quite possibly, the least commoditised asset in the investment universe, offering the potential for great returns but also—as is rarely explained by its market proponents—subject to enormous risk.
Although most of the literature to date on art as an asset has promoted its status as a good investment—a view that is fuelled every time a record price is made at auction—the jury is still out. The lack of transparency on prices (particularly from art galleries, which account for a good 50% of the market’s transactions, alongside auction houses) makes true comparisons to assets such as public equity, gold, property and wine very difficult. Even in the more opaque financial markets, such as private equity, there are considerably more data points from which to create indexes, assess risk and attempt to gauge returns.
It seemed to me that the best way to understand art’s distinct characteristics was through the prism of other such assets and industries, with which it is often compared, but rarely in depth. By looking at the characteristics that are shared and, more importantly, those that are different, this book aims to give a deeper understanding of a complicated and fascinating market.