Art as an investable asset class

By Felix Salmon
February 15, 2011

I sat down last week with Noah Horowitz and Marion Maneker to talk about art as an investable asset class.

It might be a bit hard to follow some of the subtext here, so let me try to spell it out. Essentially, if you look at the risk-adjusted returns on art, even taking at face value the improbable returns suggested by the biggest art indices, they’re not all that hot. Art is a negative-carry investment which pays no dividends, and as such it’s very risky. Its historical returns, on their own, don’t make up for that risk. So the people pushing art funds have tried a different tack, looking at the Capital Asset Pricing Model to come up with a way of saying that the risk-adjusted returns on art might not be all that great, but they’re uncorrelated, and that therefore they have a place in any efficient portfolio.

The problem with this argument is that the current art-market bubble, especially in contemporary art, has attracted so many hedge-fund managers and other financial types that art is now correlated, quite strongly, with various financial assets. The art market dried up very quickly during the crisis, and has come roaring back alongside the stock market as Ben Bernanke has continued to drop money from helicopters. The return of the art market and art values is great news for the art world and for art collectors, but it does rather put the lie to the idea that art supplies precious uncorrelated returns.

As such, it still doesn’t make any sense to invest in art as an asset class. Buy art because you love it, by all means. But don’t kid yourself that you’re making a sensible financial investment, because you’re not.


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Art has one huge advantage over other asset classes: it is lightweight and portable.

You can take it out of a frame, put it in a tube, skip to a country without extradition treaties, and you have just moved $20 million in your suitcase without leaving a paper trail for the Feds. Beats the heck out of gold for your typical white collar criminal, banking executive, or tin-pot dictator.

Posted by ErnieD | Report as abusive

The counterargument would be that art markets, presumably, are extremely inefficient. If that is the case, then a GOOD art investor would have a greater opportunity to extract excess returns than would a good investor in a more efficient asset class.

Posted by dlukas | Report as abusive

I have been in the financial markets and the art business for 25 years. I have seen stock markets crash and art markets crash. The only difference between the two is that the Stock market is regulated and has a secondary market for liquidation. The Art market has No regulation, No secondary market and is an illiquid asset, which makes it very difficult to get your money back if the financial markets crash. Having said that, making the case for The Regulation of the Art Business/Market would be a good idea for everyone except for a handful of big auction houses, galleries, collectors, dealers, and museums. If a work of art can be valued and sold for $100,000,000.00 dollars (case in point: Giacometti’s “L’homme qui marche I” which sold for $104.4 million at Sotheby’s in February 2010 and Picasso’s “Nude, Green Leaves and Bust” which fetched a record $106.5 million at Christie’s in May), then that art product/financial instrument is a Commodity. Therefore art should be sold and regulated as a Commodity.

In fact, all Art Funds should be regulated with the (SEC) Securities Exchange Commission so that investors can see what art is being sold and who is selling it, who is buying the art and at what price. Full disclosure should be made also of the mysterious phone and Internet buyers, with whom an auction house can claim to be negotiating a private sale for an undisclosed amount. This type of Chandelier bidding and smoke and mirrors method of dealing should be illegal. By regulating Art as Stock, you would need a secondary Art Exchange to trade the original oil paintings, sculptures, silkscreen prints and giclées. This Art Exchange would bring more transparency to the art business and would regulate what is already manipulated by a handful of big collectors, dealers, museums auction houses, and galleries, even by some art critics who can influence and help decide to push a single artist to increase the “value” of a painting by 50-1000% in a single transaction. The collusion and back room deals that go on in this business are criminal by Wall Street standards.

The history of Art as Stock was originated back in 1994 by an American Artist, Robert Cenedella. Cenedella was the first artist to come up with the idea to sell Art as Stock – Stock as Art as laid out in “The Art of the Deal”, an article written in the New York Times Style Section, by Bryan Miller, on Sunday, March 20, 1994. Cenedella was calling then for regulating the art market. Here we are 20 years later and we are still trying to do the same thing but with more technology and transparency. The idea was 20 years ahead of its time. In the NYT’s article, Leo Castelli was quoted as saying that he compared the 1980′s art boom to junk bonds and that Cenedella’s idea was a “conceptual work of art” when it was really an investment in Art as Stock. Nobody really understood the concept then.

Cenedella’s idea made more sense already then than all the current ideas. The Regulation D Private Placement was registered with the (SEC) Securities Exchange Commission. The offering was 200 Shares of a Deluxe Limited Stock Edition. The concept was similar to an (IPO) Initial Public Offering. The company issued 200 shares of stock valued at $1,000.00 a piece for a total of $200,000.00. With each share of stock the buyers received a bank note certificate indicating part ownership in the oil painting as well as a large serigraph (a high quality silkscreen) of the original oil painting. This assured buyers full disclosure about what they were buying under SEC rules. The silkscreen picture “2001 A Stock Odyssey” was of the inside of the New York Stock Exchange. Each investor would share in the profit above the original cost of the painting priced at $50,000.00. So if the sale price should exceed $50,000.00 the profits would be distributed to the shareholders and the serigraphs would also go up in value. If you bought 100 shares you would own 50% of the original oil painting and 100 serigraphs, which the investor could also sell separately while still retaining ownership in the original oil painting. With each investment, buyers came away with a tangible piece of artwork, the silkscreen that they could hang on their wall.

This brings us back full circle and the question is does the art market continue business as usual or does Wall Street and the Art business both figure out how to regulate the investments in the art market so that there is full disclosure and transparency.

I can tell you right now that I would rather own a Picasso, a Thomas Hart Benton or a Cenedella than a share of Lehman Brothers, Bear Sterns or Enron. This may also one day be the same case for allot of the Contemporary Junk Art market.

The art market needs to be regulated because the way it is doing business now is just a crime.

Posted by NYC123 | Report as abusive