A work of art is not just a painting or a sculpture; it is also the meaning and value that people want to give it. This, transferred to finances, means that when you buy work you not only have the piece, but you also acquire an asset capable of being revalued.
Art has always been positioned as one of the favorite assets in luxury investments. But the pandemic also reached the pockets of the wealthiest. The Art Market Research All-Art auction tracking index fell 11% in 2020. And the volume of all sales that were publicly auctioned at Sotheby’s and Christie’s last year was down 26% and 46% from 2019, respectively.
However, the aforementioned AMR All-Art index reveals that in the long term it has been an asset coveted by investors: the monitoring of artistic auctions grew by 71% in the last ten years, according to The Wealth Report 2021 by Knight Frank.
Reasons to Invest in art
After the economic turmoil, art stands out again as an attractive investment field. “While traditional collectors’ tastes have been guided by art history, new collectors are just as likely to be drawn to social media, and this change remains under lock and key,” Frank Sebastian Duthy, co-director of the All-Art Index. What reasons does the investor have to bet on art?
- Revaluation: experts highlight this type of property’s ability to generate value over time. It becomes a long-term profitable asset.
- Along with the increase in value is its high liquidity, which is increasing thanks to new technologies. AmazonArt, allows you to sell works of art since 2013, a channel that eliminates intermediaries. Another example is investing in art through the stock market, a clearly liquid investment, unlike funds.
- Solvent against other assets. The latest Deloitte Art and Finance Report (2019) reveals that the index of the 100 most profitable artists grew by 8% in the last eight years. In that time, the S&P 500, one of the strongest stock indices, advanced 3%.
- Support for other investments. A work of art in which we have invested can act, for example, as collateral for a mortgage loan. Other financial assets do not offer this possibility.
- Accessibility. We usually link investment in the art to large estates. However, it is an increasingly democratized field, where a private investor can take the first steps with a few hundred euros.
- Favorable taxation. From the point of view of taxation, art has advantages in some countries over other financial products. It happens above all with VAT and inheritance tax.
- Currency protection. Currency exchange does not affect works of art, as they have an intrinsic value regardless of the currency of each country.
5 ways to invest in art
One of the great virtues of art as an investment is that it adjusts more and more to different investor profiles. Below are some of the traditional ways of betting on this asset, more linked to high net worth, along with new alternatives to enter the art market with smaller investments.
Purchase of company shares
The stock market has companies related to the world of art. Until recently, auction houses stood out, such as Sotheby’s, were listed on the New York Stock Exchange until the arrival of its new owner, in 2019. Another former listed company is Christie’s, another of the most famous auction houses, which was listed on the Stock Exchange until it was bought by Groupe Artemis, the investment arm of François Pinault (Gucci, Yves Saint Laurent), so now it cannot be invested directly in it.
Who is listed is artprice.com, the world’s largest database of art prices. It also conducts electronic auctions of art or decorative objects. The investor can find it on the Paris Stock Exchange (under the code PRC). Now far from record highs, it may be an option to invest in the long term.
The strength of equities is that it is one of the most liquid ways to be present in this market. Only by giving the order to sell our shares is the money invested recovered. In addition, they are affordable for many audiences, since the entry capital to these companies is usually low. For example, a share of artprice.com is currently worth 5 euros. In addition, if the companies pay dividends, our investment will generate regular returns, something that other ways to invest in art do not offer.
Investment in shares, on the other hand, has two obvious negative points: it does not allow having a diversified portfolio (the bet on art is reduced to shares of specific companies and in the face of the poor performance of these values, our assets will suffer). In addition, to invest in shares you have to do it through a broker, an agent/company that executes financial instrument trading operations, such as shares. When in doubt about which one to hire or to get to know other options in-depth, contacting an expert, such as the financial advisors that you will find, is always a guarantee.
Art investment funds
Investment funds in the field of art are less frequent, but some do exist. Unlike single shares, they allow the individual to be invested with more diversification and less risk. The funds make the investor a partial owner of a work of art and the selection of works is delegated to managers. MasterWorks, for example, purchases world-class works at auction on behalf of its investors. Create a holding company for each work to acquire, store, promote and resell it.
This type of partial ownership is one way to get into investing in art. MasterWorks identifies works of art with the potential to increase in value and oversees the maintenance required to keep them in pristine condition. However, its investors pay a fee for this service and do not get to take physical possession of the art. Other funds that work with this philosophy are: Anthea – Contemporary Art Investment Fund SICAV FIS, The Fine Art Fund Group or the Artemundi Global Fund.
The biggest drawback of this vehicle is that the minimum amount is high (several thousand euros) and many ask to maintain the investment for many years, so it is a little liquid option. They are a more profiled product than stocks for which it is difficult to access profitability statistics.
Crowdfunding or crowdequity of art
Crowdfunding (financing of collective projects), unlike funds, is more horizontal and is designed for a variety of audiences. A successful formula in many fields that the investor can also apply in the art and allows him to diversify his investments.
When the objective is to invest in art projects or to finance certain artists, this is the best formula. If what we are looking for is to generate profits on the investment, then we must use the platforms dedicated exclusively to crowdequity: they are supervised by the CNMV and their greatest advantage is that they are interest-free (in addition to savings of up to 30% of the investment when declaring income tax), On the contrary, the biggest drawback is that art projects do not abound in crowdequity.
Purchase of NFTs
NFTs are the latest of the latest for the collector investor. They are the acronym in English for non-fungible tokens, which work through the blockchain. This same technology is what is behind cryptocurrencies, such as Bitcoin. But unlike cryptocurrencies, they are unique and cannot be exchanged with each other. No two NFTs are the same.
The last few months are becoming popular precisely because of art. The sale of work with this formula (for a whopping 58 million euros) made its author the third most sought-after living artist in the world. With them, the investor acquires the entirety of a work… or a small piece. But what support does it have and how is this possible? NFTs create an autograph or digital certificate of ownership that can be bought and sold, and stored in an electronic ledger.
Its greatest attraction is that it explores the most varied manifestations of art that one can imagine: art in classic formats such as paintings, in the form of GIFs, images of physical objects, graphic art associated with video games, and music album… It is probably way more democratic than those that exist to invest in art. The counterpoint is that it is still a very new technology about which some unknowns must be cleared up, such as CO2 emissions and the energy consumption generated in NFT transactions.
Purchase of physical works
From the most innovative we move on to the most classic: buying physical art and then reselling it when we consider that it has been revalued. They can be paintings, furniture, manuscripts, ceramics, sculpture, photographs…
With small capitals, a common technique is to buy works by young artists who are not yet well known but are beginning to stand out. The investor maintains the hope that his works will be revalued, and that so will his personal assets.
Invest in art with little money
Some of the ways of investing in the art are conducive to the small investor. From physical works of emerging artists to company shares, through methods accessible to all pockets, such as crowd equity or NFTs. However, when it comes to investing savings, no matter how little money, it is convenient to know our risk profile. Through this tool you can find out:
According to connoisseurs, art is one of the best investments in times of crisis. Selling prices for artists and galleries decline. This, together with its intrinsic value, means that the risk of a work losing value over time is almost nil. Its upside potential, on the other hand, is very high. Let’s land the profitability data.
What profitability does art offer?
The profitability of investing in art rises many times to double digits. Citibank’s artistic advisory area ensures that the art market grew by 13.7% on a global scale between 2000 and the beginning of 2019. A remarkable figure considering that there were several years of the financial crisis in between.
Uniqueness is the factor that makes work more valuable over the years and revalues it in the eyes of investors. Many times this asset is used to diversify portfolios and obtain extra profit. Some entities already offer an art advisory service to high-net-worth clients, such as BBVA Global Wealth or Santander Private Banking.
