Art Investment

Why art investment makes sense for portfolio diversification

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Written by
Juan Dominguez

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22 October 2018

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Alternative investments like art are one of the first places many investors put their money in times of economic uncertainty.

The global recession of 2008 is a key indicator of the trend, as underlined in a 2012 report published by the McKinsey Investment Group. They had a look at the growth of the alternative investment market at the time and found that investor appetites were diverging because of international economic woes.

“Global alternative investments across retail and institutional segments doubled in AUM between 2011, to $6.5 trillion despite a very public flame-out during the crisis,” the report said. “This represents a compounded annual growth rate of 14 percent over the period, far outstripping the growth of traditional asset classes. Growth is set to continue.”

Fast forward to 2018 and research by Fidante Partners suggests the alternative market is set to grow by $2.5 billion in the next three years. Amongst those alternative options - and one in which private banks have started to offer investment advice - is a bustling art market.

FREE Art Investment Explainer Document >

 

Why the popularity of alternative investments? And why art?

So why do alternative investments rise in popularity in times of economic uncertainty? It’s because when traditional asset classes run into trouble, a key aim for investors is to diversify their portfolios to reduce their exposure to risk.
By spreading savings around different markets, investors can minimise volatility across their overall portfolio, which is great should one market be hit hard by external economic factors. Basically, it’s a way to avoid putting all your eggs in one basket.

As for art, one of the reasons it’s become so popular as an alternative investment for this purpose is that artworks hold their value very well and tend not to be affected by many external market factors.

In comparison, an investment such as real estate means entering a potentially volatile market – think of landlords having to pay 3% extra stamp duty on second homes in the UK from 2016. Art is different – it won’t fluctuate in value as a more traditional investment avenue such as oil or gold can (the former was as low as $27.67 a barrel at one point in 2016), and retains its value well.

Again, global financial uncertainty was the main factor in the prices of traditional assets such as oil, coal and gold dropping in value over the last few years. The same factors aren’t really true for art – rather than being affected by external market factors, a painting or sculpture derives value from its cultural significance and the tastes of the art world. An artwork’s value can be gauged on taste, genre and prestige, which goes a long way to explaining high auction prices when an artist is in vogue.

How to buy art as an alternative investment

However, there is a caveat in that adding art to your portfolio as part of a diversified investment strategy can be difficult without significant capital and connections in the art world. Low-risk, blue-chip artworks come with a high price tag, and it takes a level of industry expertise to identify future high-performers and ensure the provenance of your investments is sound.

In the past, this will have prevented many investors from using art as a way to diversify their investment portfolios, despite the benefits described above.

However, the Maecenas platform is looking to change that.

We do this by taking artworks and tokenising them - breaking them down into fractional digital interests that can then be bought and sold in a secure and transparent way using blockchain technology. This means investors can own fractions of high-value paintings and sculptures rather than the entire artwork, and rely on our platform to keep an accurate record of provenance and ownership.

As of July 2018, Maecenas has already helped numerous art investors enter the market and invest in a blue-chip Andy Warhol painting by bidding for shares in a Dutch auction process.

With the right approach, investors could buy authentic digital certificates in artworks such as these and create a large, diversified investment portfolio in numerous high-quality artworks for significantly less than they would at an auction house.

Find out more about the Maecenas platform and how it could help you to enter the art investment market by downloading our Art Investment Explainer Document.

FREE Art Investment Explainer Document >

 

Topics: Art Investment

Juan Dominguez

Written by Juan Dominguez

Prior to joining Maecenas, Juan worked for major global banks such as JP Morgan, ING & ANZ. With a career spanning four different countries (UK, Australia, Netherlands & Spain), he has experience on a wide range of transactions including Institutional Banking, Real Estate, Corporate Advisory & Private Equity. He holds a bachelor of International Business and a Master of Applied Finance from Macquarie University, with an award for high achievement.

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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