ART & GLOBAL WEALTH TRENDS
Today’s high net worth individual wealth is over $30
trillion and is increasing by 7% per annum. Currently, $300
billion is potentially available to be invested in art (ABN AMRO report, 2005).
A 2008 study by Mamarbachi, Raya, Day, Marc and Favato, Giampiero, "Art as an Alternative Investment Asset" found that art in
emerging markets [India] has produced 2000% returns over the
past 8 years and by far outperformed returns of the best
performing Hedge Funds like Credit Suisse Tremont Hedge
Fund, Barclay Global Hedge Source Fund, or Hedge Fund
Research Equal Weighed Strategies (Figure 4, page 20). New
York University's Stern School of Business professors have
studied art sales over 125 years and compiled it into the
Mei Moses Fine Art Index.
For example, a J.M.W. Turner view of Venice sold Christie's
in London on May 29, 1897, for $35,000 and then sold at Christie's NY in April 2005 for $35.8
million—which yields about a 6 percent annual return for 109
years. The 1954-2004 fifty year data shows, over the last 50 years, stocks (as represented
by the S&P 500) returned 10.9 percent annually, while the
art index returned 10.5 percent per annum. The most recent
annual five and ten year returns for art, 16.2% and 10.3%, exceed the
returns of stocks often offering investors a safe heaven during stockmarket crashes like we've seen in 2008 and again this year.
More recently, art funds have been created to allow rich people to invest in a
portfolio of fine art assets (e.g. a London-based
Fine Art Fund created by a former Christie's executive).
Art has always followed the money, and money follows the strongest
markets. Dealers like Larry “Go-Go” Gagosian, Daniella Luxembourg and
Jeffrey Deitch, hedge fund moguls and newly born oligarchs want to participate
in $30 Billion Private Art Sales Around the World buying
multi-million dollar works. In the meanwhile,
Professors Moses & Mei found that art purchased for less than
$100,000 produced significantly higher returns than art
purchased for $100,000-$1m or higher.
Professor Worthington of QUT School of Economics and Finance
studied global art markets and calculated returns in Australian art market based on about 36,000 auction sales. In his study at University of Wollongong he identified
Australian Fine Art as a separate Alternative Investment asset class, that produced 30-year average annual returns of 8.23% for all artists as average, in
line with other world art markets, and works costing
$10,000-$35,000 providing highest returns.
AUSTRALIAN ABORIGINAL ART RATE OF RETURN
Prior to 1990s Australian aboriginal art was viewed
merely as part of tourism only to power charge resale values, like
$1.056 million for Emily Kame Kngwarreye's Earth's Creation and $2.4m for
Clifford Possum Tjapaltjarri’s Warlugulong in recent
years. The Warlugulong painting was bought by
Commonwealth Bank of Australia in 1977 for $1200. In 1996, Melbourne art dealer Hank
Ebes acquired the painting for $36,000 and in 2007
National Gallery of Australia acquired the painting at
the Sotheby's auction for a princely sum of $2.4 million. This returned Ebes more than 6,500%
on his investment (1996-2007).
Never mind, if CBA would have held to their $1,200 investment, it
would have returned them 200,000% (1977-2007). Aboriginal art works are called the
outstanding paintings of the 20th century and form a $700 million industry.
With recent success in Bahrain and Musee du Quai Branly in Paris
aboriginal art of Australia is a rather hot investment commodity.
BEAUTY & PORTFOLIO DIVERSIFICATION
Art as an asset class was found to have less volatility and
much lower correlation with other assets as found, hence a
portfolio of artworks may play a somewhat more important
role in portfolio diversification. While the idea – “don’t
put all your eggs in one basket” is timeless, the funds
management principles date back to the early 1950’s. In
June of 1952, a 25-year-old graduate student published a
provocative article in the Journal of Finance that would
have a profound impact on Modern Portfolio Theory. In his
writings, Markowitz discussed risk management through
diversification. He found that by investing your money
across a number of asset classes, there were opportunities
to get more return from a given level of risk, or lower the
risk of your portfolio without compromising returns.
Bill Sharpe took Markowitz’ work and developed the Capital
Asset Pricing Model (“CAPM”), and introducing Beta as a
measure of market risk. Markowitz and Sharpe shared the
Nobel Prize in Economic Science in 1990 for their work
on Modern Portfolio Theory. Building upon the work of
Markowitz and others, Gary Brinson sought to study the
impact of the asset allocation policy decision. The
Brinson Beebower studies, originally completed in 1986
and revisited in 1991, suggested that 93.6% of a portfolio’s
change in returns over time were attributable to
asset allocation policy.
Learn more at ARTBANK
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