Investing in art is not something for the common man, not even most millionaires. The decision to invest in art is not for someone who is trying to make a quick buck and put it towards their retirement; a bidder at highbrow auctions, spending over $100 million on paintings, is a different breed of investor. Investing in high priced art is not a new trend by any stretch of the imagination.
On November 12, Sotheby’s held a record-shattering auction where a piece by Andy Warhol reached about $104 million and a triptych by Francis Bacon went for $142.4 million. Now, hearing numbers like that may make people scratch their heads, but the art world is a unique way to take a look at the world’s economic climate. A lot of these bidders are coming from emerging markets in the Middle East, Asia, and Russia, where a select few have become wealthy at unfathomable rates, who reaped the benefits of burgeoning economies and increasing commodity prices.
While the art market has long been appreciated by hedge-fund managers to display wealth in a lasting and elegant way, new players in the market are using it as an alternative investment as they look to the future of the global economy. The super-rich like the idea of a portable, beautiful work of art that also retains its value. High priced art like those mentioned earlier tend to be immune from factors like inflation, unemployment, and anything else that disrupts stock and real estate markets. If the past is any representation of the future, art will retain its value despite dips in the market. Even during recessions, record sales occur often for works that rarely see the auction block.
One of the main reasons behind the amount of money that is out there and able to be spent is because of the quantitative easing measures implemented by the Federal Reserve. The fear is that as the Fed continues to purchase bonds to stimulate economic growth and more money is dumped into the economy, the value of the dollar would decrease and eventually lead to terrible market conditions when these economic policies come to an end.
The investment in art can be seen in relation to fears of inflation dating back to the Carter administration. When we think of President Carter now, we tend to think of the great things he has accomplished since leaving the presidency. His ability to deal with the dire national economic situation was not his crowning achievement. Between the years of 1977-1982, inflation rose nearly sixty percent, and investors responded by investing money in grade artworks. The Art 100 index, which measures auction sales of the key hundred mid-century artists, rose 130 percent during that same time period.
The mega-wealthy understand that quantitative easing will not last forever and are trying to make the most of it and for those in the know, it is completely understandable. For the privileged few, art purchases need to be made with great thought and foresight, not on a whim. Many private and exclusive banks have financial art advisors on staff to assist in preserving the wealth of their clients and make the intimidating art world easier to navigate.
The record set for the Bacon Triptych discussed earlier should be viewed in a cautionary way for the typical investor in the stock market. The last time Bacon set a record was for about $86 million in 2008 before the market took a big beating. Now I’m not trying to say that ALL art is a great investment, but clearly there are works that could be considered timeless: able to outperform and suffer far less vulnerability than traditional investments.
- What’s behind the spike in art sales: vanity, fear and easy money (uk.reuters.com)
- World record art sales as super-rich snap up Freuds, Koons, and Warhols (theguardian.com)