Art Investment

5 factors to consider before choosing art as an alternative investment

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Written by
Marcelo García Casil

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5 November 2018

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So, you have decided you want to purchase a piece of art as an alternative investment opportunity.

That’s great; there are few other investment opportunities out there that are as attractive and can provide so much joy. Art enthusiasts – if they make the right moves – could not only own some of the most beautiful and creative artworks on the planet, but they could also own pieces as a diversified investment opportunity that could potentially soar in value.

Take Salvator Mundi by Leonardo da Vinci, for instance. Owner Dmitry Rybolovlev thought he had made a mistake and overpaid for the piece depicting Jesus Christ in 2013 when he acquired it for $127.5 million. He likely doesn’t think so anymore, with the painting sold in November 2017 at Christie’s for $450.3 million, making it the world’s most expensive piece of art.

That is one of the major attractions of art as an alternative investment for millions of people across the world; that they will be able to invest their savings into an artwork and hope to sell it for well above its purchase value in the future.

Not just for individual investors, either; between 1974 – 81, the British Rail Pension Fund invested approximately $70 million into fine art and accrued a respectable ROI. It was a diversified investment opportunity for the fund and paid off; many banks and other businesses also invest in art for similar reasons.

FREE Art Investment Explainer Document >

 

Art as an alternative investment isn’t easy, though…

We may have oversimplified the average person’s desires for art investment there, but it’s a common aim for many and all a lot of people think they have to do; turn up to a gallery, purchase an artwork and watch its value soar.

It simply isn’t the case, though. There is so much more to consider when looking at art as an alternative investment that many do not realise, including:

1. Financial barriers to entry

It is fair to say the vast majority looking at a diversified investment into art will not have access to hundreds of millions to purchase a Salvator Mundi. Capital is one of the biggest barriers to entry in what is often viewed as market which is a closed shop. That is not the only cost that investors face; auction houses can take commissions of up to 25% when buying and selling, and making the wrong move in the market could see you purchasing a white elephant.

2. Additional costs

We have already mentioned high commissions when buying and selling. With auction houses Christie’s and Sotheby’s owning approximately 80% of secondary market volume too, it’s more than likely you will have to put your hand in your pocket when making an alternative investment into art. Those fees are not the only ones to be wary of; fees such as storage, insurance, transport and many other costs need to be factored into every single piece of artwork you purchase.

3. Provenance risks

How can you be sure that your artwork is genuine? The gallery you purchase from should have the best idea, but they are not always able to be 100% accurate. The tale of Alain Dreyfus is a case in point, with the collector being alerted in 2016 that the Alfred Sisley painting he purchased at Christie’s in 2008 was actually looted by Nazis in 1940 and rightfully belonged to another family. Dreyfus has since demanded his money back for this failure in provenance documentation.

4. Liquidity risks

Buy a piece of art, watch its value rise and cash out. As easy as that, right? Not necessarily; art as a diversified investment is notoriously illiquid, and there can be many external factors that can stop investors from cashing in on their assets. The wider economic climate, the country you’re buying or selling it in, and the genre of the piece itself are all contributing factors that can make a sale more difficult and stop you from accessing your money.

5. Ownership models

Not as much as a problem but more food for thought. Art as an alternative investment can be an excellent opportunity for those who have the funds to participate in auctions and the know-how to identify high-performing artworks. For those without the capital to buy a masterpiece, however, it may be more judicious to explore alternative routes to entry such as a shared ownership model.

Shared ownership is not something investors normally think of when they think of art investment. However, thanks to blockchain technology, it’s now breaking through into the mainstream and we believe it has the potential to bring about a major upheaval in the way the art market works.

For example, if an investor chooses to invest in digital shares in a painting rather than the entire artwork, this significantly lowers the cost of entry to the market, as well as bypassing the auction houses and removing some of the liquidity risk (because it’s easier to trade small fractions of an artwork than the artwork itself).

With blockchain underpinning this, future investors in the painting will also have better long-term assurance of provenance than art investors have had in the past due to the secure, transparent and untamperable nature of the centralised ledger.

Choose art as an alternative investment with Maecenas

The Maecenas platform allows those interested in art as an alternative investment to own pieces of art thanks to our commitment to shared ownership and determination to democratise the art world.

The Maecenas platform works to connect art lovers from all backgrounds, whether they want to invest or sell, with successful bidders able to own secure digital shares in some of the world’s most famous artworks.

Investors are also able to spread their investment capital more easily, diversifying their portfolios by purchasing shares in numerous works. The very first artwork tokenised through the platform was a genuine Warhol; investors no longer have to imagine owning famous artworks thanks to the Maecenas platform.

Find out more about the amazing benefits of the Maecenas platform by downloading our Art Investment Explainer Document.

FREE Art Investment Explainer Document >

 

Topics: Art Investment

Marcelo García Casil

Written by Marcelo García Casil

Founder and CEO of Maecenas. Having previously worked at a number of large global banks, Marcelo has wide-ranging experience in designing and building large-scale enterprise-grade systems with a focus on investment banking and financial solutions. An an entrepreneur, Marcelo has specialised in blockchain and financial technology, primarily in areas covering tokenisation of assets and new capital markets. His strong technical architecture and leadership skills have earned him the recognition and endorsement from amongst his clients, teammates and peers. Marcelo frequently speaks and presents at industry events, conducts specialised workshops and training sessions, and provides expert advice to companies.

Please read the following disclaimer >

This blog post is illustrative and for informative and general education and discussion purposes only. It is not, and should not be regarded as “investment advice” or as a “recommendation” regarding a course of action, including without limitation as those terms are used in any applicable law or regulation. This information is provided with the understanding that with respect to the material provided herein (i) MAECENAS is not acting in a fiduciary or advisory capacity under any contract with you, or any applicable law or regulation, (ii) that you will make your own independent decision with respect to any course of action in connection herewith, as to whether such course of action is appropriate or proper based on your own judgment and your specific circumstances and objectives, (iii) that you are capable of understanding and assessing the merits of a course of action and evaluating investment risks independently.. MAECENAS does not purport to and does not, in any fashion, provide tax, accounting, actuarial, recordkeeping, legal, broker/dealer or any related services. You should consult your advisors with respect to these areas and any material with regards to investment decisions. You may not rely on the material contained herein. MAECENAS shall not have any liability for any damages of any kind whatsoever relating to this material. No part of this document may be reproduced in any manner, in whole or in part, without the written permission of MAECENAS except for your internal and/or personal use. This material is being provided to you at no cost and any fees paid by you to MAECENAS are solely general educational purposes. All of the foregoing statements apply regardless of (i) whether you now currently or may in the future become a user of MAECENAS’s platform or products and (ii) the terms contained in any applicable contract between you and MAECENAS.

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