A Guide to Invest in Art

The global equity market capitalisation is at all time high (see chart below which shows this in $trn).

The graph poses many questions but one of the key points for me is the following: how much of this “wealth” is illusory (i.e. the result of artificial financial activity which does not reflect economic activity, caused and supported by the political institutions known as central banks) versus how much is real (i.e. the result of real economic activity).

global equity valuation all times high

Because I believe that a lot of this is the result of the former phenomenon, I think that the best investments are in real assets – land, property, gold (that you have it in your home) and collectables (art).

global money supply correlation with global equities

This is a guide about investing in art.

A Brief History of Collecting and Investing in Art

The first modern art investment fund was established in Paris in 1904 by Andre Level, “a Parisian businessman, critic, and art collector from a prominent French family of industrialists who established a reputation as a champion of the avant-garde and expert on African art”. However, collecting art with the purpose of storing value goes back to ancient times.

“Alongside the birth of literature and the sciences, art played a crucial role since the earliest epochs of human history”, writes Alexis Culotta for Artland magazine. Art collecting was a widespread practice: from ancient China to the Greek civilisation, art was a symbol was of high status in society and therefore, of wealth and influence.

Art collecting cemented itself as an investment practice during the Renaissance, with the Medici family from Florence setting the tone for the entire European continent. Then, in 1674, the Stockholm Auction House opened, allowing artists to monetise their work even more broadly. Other auction houses, more notably Sotheby’s and Christie’s opened about a century later, in 1744 and 1766 respectively.

Moreover, the Grand Tour, a rite of passage for young aristocrats that included travels through Europe to acquire knowledge about history and culture took place between early 16th century through to early 18 century, further cementing the idea of art collecting business. Indeed, by this point in history, collecting art was a sign not only of wealth and financial acumen but of a distinguished intellectual inclination.

Wealthy individuals acquiring art either for its aesthetic value or for financial reasons remained a distinct phenomenon during the Industrial Revolution and in its aftermath. “Seemingly overnight, middle class and upper middle class individuals enjoyed a greater amount of disposable income and leisure time, thereby allowing new connoisseurs and collectors to enter the artistic marketplace” writes Culotta. A similar phenomenon happened across the Atlantic, where American industrialists got richer and richer and, with the help of European art dealers, were able to invest in a diverse range of artworks.

Throughout the 20th century, with the technological, financial and geopolitical transformation of the entire world, the relevance of the art market also changed. In the 1960s the first efforts to create art price indexes were made, with two influential books published on the topic of art as investment in the same year of 1961: Ricard Rush’s “Art as an Investment” and   Gerard Reitlinger ‘s “The Economics of Taste: The Rise and Fall of Picture Prices, 1760-1960”.

Moreover, institutional investors, such as pension funds, began looking at art as a serious asset class: in mid-1970s, the British Rail Pension Fund invested in about 2,000 artworks – an unprecedented financial move. “This institutional recognition conferred an unprecedented degree of legitimacy on art as an asset class. Despite many corporations amassing large collections since, this level of corporate investment remains, in many ways, unmatched today”, states Sotheby’s Institute of Art.

You can see a snapshot of the history of investing in art in the table below which shows the history of the art market in 35 record-breaking sales. It comes from the 2015 paper called “The economics of aesthetics and record prices for art since 1701”.

history of art transactions

Although the methods of acquiring art changed, through all the centuries of changes in technology, commercial ties and political attitudes, interest in art has remain a constant. As a result, even if today’s art market looks very different than what it did in ancient Greece, it remains an area of interest for investors all over the world.

The Art Market in 2021

The art market consists of the primary market and the secondary market. The primary market is where new works of art are brought to the marketplace and refers to the first sale of that piece, while the secondary market is where existing works of art are traded.

Works on the primary market are usually sold either directly via the artist’s studio or through a gallery. Meanwhile, most artworks on the secondary market are sold through auction houses as the artists tend to have considerable reputation. A snapshot of the global art market can be seen in the figure below.

The sales in the global art market went from $39.5bn in the wake of the global financial crisis to just over $50bn in 2020, down 26% from the peak figure of $68.2bn in 2014.

global art market value

We can also look at the global art market broken by geographies. We can see that the United States has taken more of the market share over the past decade, growing 13 percentage points (1300 basis points). Meanwhile, over the same period, China’s reach on the global art market has declined by 10 percentage points (1000 basis points), while the UK has roughly maintained its share at about 20%.

There are different venues through which investors can buy artworks. These include: dealers, auction houses, art fairs and online / digital shops. We will look at the data behind these sectors in order to better understand how the art market has changed in recent years.

Art Dealers

The dealer sector comprises of about 220,000 businesses, covering both the primary and secondary markets. Many of these ventures are small and micro-sized companies, both in terms of headcount and sales turnover. However, dealers represent all sorts of artists in terms of experience, from newcomers to well-established names.

The above chart breaks down the experience of artists represented by dealers on the primary market by the value bracket of their artworks. We can see that the high-end of primary market, at least when it comes to the dealer sector, is dominated by established artists, with reputable names representing 54% of artists whose work is worth over $10m when these creations enter the market for the first time.

The dealer sector’s sales channels are vast, including online, art fairs and galleries. Data from 2020 shows that 42% of art dealer sales came via galleries, while 25% through online shops. Among the biggest dealers in the world, Gagosian, Hauser & Wirth, Pace, and David Zwirner account for “for around 800 staff, 41 spaces, and more than 300 artists and estates among them”.

As one might expect, art dealing is a business based on personal relationships: it is an intimate process to engage with artworks, let alone to decide to invest in one. Indeed, many dealers consider themselves family businesses, passing down to generations their knowledge and connections.

Therefore, a key question for investors when looking to buy art via a dealer is to understand how the dealer’s venture will function once the key names that made the business reputable retire or move on to other things. In other words, investors who look at art as a multi-decade investment opportunity and understand the relationship-based world of art dealing ought to understand the succession plans of their chosen dealers.

Art Auction Houses

When it comes to auction houses, the art world is further divided in private auction houses and public ones. Data about the private side of this sector is notoriously difficult, if not impossible, to gather. As such, we will mainly focus on the public auction houses.

We can see that the worldwide public auction sales declined by about 46% in 2020, relative to 2011 and by about the same level from their peak in 2014. This isn’t the first time the sector goes through a decline, however. In the aftermath of the financial crisis, public auction houses saw their artwork sales down by 44% between 2007 – 2009. “However, sales recovered rapidly in 2010, aided by a booming auction market in China and recovery in the US, and after some variation in sales year-to-year, reached a peak of $32.7 billion by 2014”, according to “An Art Basel & UBS Report 2021”.

Some of the biggest sales include the $84.6 million for Francis Bacon’s Triptych Inspired by the Oresteia of Aeschylus (1981), $76.6 million for Wu Bin’s Ten Views of Lingbi Rock (1610), $46.2 million for Roy Lichtenstein’s Nude With Joyous Painting (1994) and $41 million for David Hockney’s Nichols Canyon (1980).

Out of the $17.6bn of artworks sold through public auction houses, 81% of sales by value were made in the three largest auction hubs in the world: United States of America, Greater China and the United Kingdom.

However, as public auction houses have suffered losses, mostly because the requirements imposed by governments during the pandemic made it difficult (and for a while, impossible) for people to gather in confined spaces, private sales have flourished. “While salesroom floors have remained empty, collectors have continued to purchase art from Sotheby’s, Christie’s, and Phillips, especially online” writes Alina Cohen for Artsy, a marketplace to discover, buy, and sell fine art.

Dealers and auction houses aren’t the only ways for investors to purchase artworks. Art fairs are also a popular sector of the global art market.

Art Fairs

As one might expect, 2020 was a tough year for art fairs as most were cancelled. Hence why we can see a dramatic fall in sales.

However, art fairs’ future looks bright. For one thing, a lot of the cancelled art fairs moved online. This ensured that art fairs remained relevant for artists and investors alike. For example, London Art Week, one of the biggest art fairs in Europe which took place in late 2020, was a fully digital event.

“The winter edition brings together around 50 international dealers offering museum-quality pieces spanning millennia and media. Highlights of the week-long extravaganza include a virtual tour of Weiss Gallery’s exhibition of historical portraits depicting ‘men of action’ in combat and Philip Mould & Company’s multi-disciplinary display of work by British women artists from the past 500 years.”

The success of online art fairs can be seen in data from Artsy. “The Art Basel & UBS Report 2021” states: “Artsy partnered with 69 fairs and events in 2020, including running online-only events for fairs such as Art Cologne, Photo London, the International Fine Print Dealers Association annual print fair, and Masterpiece London. Artsy reported that these 69 events generated over three million page views, over 300,000 unique visitors, and 24,000 purchase enquiries on artworks posted, all their highest ever levels for their art fair online partnerships”.

Furthermore, art fairs are primarily a place for people in the art business, from dealers and art advisors to collectors and curators, to build connections and close deals. “But fairs are also sumptuous visual emporiums that are open to the public, and exhibitors tend to pepper the events with dazzling, spectacular pieces to delight crowds and capture the imagination of photographers”, explains Artspace.

In other words, people enjoy the networking and interactions which these events offer. Consequently, as the world reopens, art fairs are likely to come back in force. You can view a comprehensive list of upcoming art fairs, online and in person, on Artfairstats.com.

An overview of the art fair market pre-pandemic can be seen below. We can observe that from 2015 onwards, art fairs became more popular, with their number increasing from 140 in 2014 to about 170 in 2019. However, this growth wasn’t linear.

Online Artwork Sales

The online market for art has grown slowly over the years, until booming in 2020. As one might expect, an explanation for what we seen in the chart below has been the moving of large parts of the economy, including the art market, online due to government imposed shutdowns.

The scale of this transition to an online environment can be seen in the graph below, which compares the percentage of sales that happened online for the retail sector and for the art market. For the first time ever, e-commerce accounted for a larger proportion of total sales for the art market than for the retail sector.

Among the strategies which paid off the most were direct and personalised emails, social media activities and online viewing rooms. In particular, OVRs (online viewing rooms) have played a key role in generating sales. OVRs are websites, typically public ones, that feature works of art with information about them. This method of engaging with potential investors is not new to the art world. Galleries began using OVRs in 2007. Although, back then, these were mostly private viewings.

However, galleries weren’t the only players in the art market that set up OVRs. Art fairs also adopted this strategy. Nevertheless, the success of OVR art fairs was mixed, with many galleries reporting that the online of an art fair was less successful than its original format of face-to-face networking.

We can’t speak of the art market in 2021 without mentioning NFTs, or non-fungible tokens. In March this year, a digital artist sold a JPG file for $69 million at Christie’s. According to the New York Times: “After a flurry of more than 180 bids in the final hour, a JPG file made by Mike Winkelmann, the digital artist known as Beeple, was sold on Thursday by Christie’s in an online auction for $69.3 million with fees. The price was a new high for an artwork that exists only digitally, beating auction records for physical paintings by museum-valorized greats like J.M.W. Turner, Georges Seurat and Francisco Goya. Bidding at the two-week Beeple sale, consisting of just one lot, began at $100.” The artwork was called “The First 5,000 Days”, representing an image that the artist uploaded online since 2007.

“A secure network of computer systems that records the sale on a digital ledger, known as a blockchain, gives buyers proof of authenticity and ownership. Most pay with the Ethereum cryptocurrency. “Everydays” was the first purely digital NFT sold by Christie’s, and it offered to accept payment in Ethereum, another first for the 255-year-old auction house” reports the New York Times.

However, there are several risks associated with NFTs which investors should be well aware of. In particular, some commentators have raised questions about the validity of calling NFTs a viable investment, suggesting that an important reason for why some of these tokens were sold for millions of US dollars is the easy monetary policy pursued by central banks: “The line between what is tomfoolery and what is genius, what is a farce and what is a revolution, is getting blurrier by the minute.”

Moreover, the question of how regulators view NFTs remains up for debate. This can create further uncertainty around the legal protections for those who buy these tokens. Therefore, investors that are looking at this space should do thorough research on these products to ensure a fundamental understanding of all the risks and potential rewards involved.

With this overview of the art market in mind, let’s move to define art as an asset class. In doing so, we will look to answer two questions: what constitutes art and how can art be viewed as an investment opportunity?

Defining Art

What constitutes art?

We cannot discuss art as an asset class without touching on a few philosophical underpinnings of what constitutes art.

We will not go into the depths of aesthetics, which is the branch of philosophy concerned with the study of beauty. However, we will touch on a few key points which should help you navigate the world of art as an investor: these are ways of thinking about art when assessing whether or not a creation is indeed a work of art.

Not everything we create and we like is art, even if we may want to believe that it is. There are certain qualities which transcend other creations which give the status of an “work of art”. These qualities are in fact the key underpinning of value behind the art as an asset class.

Art is a medium of communication that comprises multiple elements: the artist and the broader public, anyone who engages with that creation and themselves, anyone who engages with that creation and a higher state of mind achieved through contemplation. In other words, something which is artistic in nature connects us with its creator, with other people, with ourselves and with the broader Universe.

Consequently, something which is a work of art is not based on subjective opinions. Fashion is subjective, art is not. Statements about politics, ethics and other human affairs are subjective, art is not. As such, Maurizio Cattelan’s duct-taped banana and Marcel Duchamp’s pissoir, although strong political and social statements in themselves, are not art. Of course, art can shock as well as it can please but the important point to remember is that art’s role is to help us transcend our human condition: it is this quality which gives a work of art its timeless value.

Art contains a strong element of objectivity imbedded in it. It commends an almost universal agreement of its beauty and cultural worth. You may prefer one work of art over another, because they speak to you differently. However, you acknowledge that they are both works of art.

Investors that come to the art world with the perspective that “what is art is always subjective” risk wasting their capital on creations which are anything but art.

Therefore, the first two things to look for when thinking about whether something is art or not are: 1) how widely acclaimed the object in question is and, if applicable, for how long – the more diverse and wide spread the praise the better as it signals universality and 2) what are the acclamations for: how does it make people feel, what are the thoughts of those who engaged with it, can they express everything clearly through words or is there something which it leaves them speechless?

Another quality of art is its honesty, which is expressed through its uniqueness. A work of art contains an undeniable aspect (or aspects) about the artist, the world around us or about ourselves as human beings. It represents this truth with unmistakeable honesty: when we engage with it, there is nowhere to hide – we must confront this aspect. This is where the communication process highlighted above starts.

Importantly however, works of art do not exist to persuade us of a particular view or value. Rather, they present to us a part of our journey as human beings and allow us to reach a common ground.

Now that we have discussed a bit about the philosophical and psychological underpinnings of what makes something art, we shall turn our attention to how can we define art as an asset class.

Art as an asset class

Economically and financially speaking, when thinking about what an asset is in general, we think of three qualities: it is a resource or a claim on a resource which stores value, grows wealth through price appreciation and / or produces a stream of income. However, there are other qualities, such as legal ownership and regulations concerning who gets the benefits from the asset.

Art falls within the class of alternative assets. This simply means that when investors think about buying art, they regard it as a non-traditional asset, unlike bonds and equities which are seen as traditional investments.

The alternative asset class group is wide and encompasses virtually anything outside public traded stocks and bonds: hedge funds, private credit instruments, real estate, artworks, derivatives, private equity, venture capital and commodities. 

Below is a table from Preqin which shows the differences between the traditional and alternative asset classes.

Art: performance and store of value

There are multiple indexes which, in aggregate, try to show how the art market has performed, either globally or regionally.

One of the most well-known such tools are the Mei Moses Indices. These were developed in 2002 by New York University Stern School of Business Professors Jianping Mei, PhD and Michael Moses, PhD. In 2016, they were acquired by Sotheby’s. The methodology behind Mei Moses Indices is based on the Case-Shiller Real Estate Index.

The index shows a clear appreciation of value over the past seven decades. However, between 2010 -2020 we can see that the index remained almost flat.

What drives the above price appreciation are two mechanics. Firstly, there is more demand for art than supply of it. According to research by Masterworks (an art investing platform), there is increasing demand from a growing class of global millionaires while the supply for artworks remains relatively low.

Secondly, art is becoming acknowledged as a global asset (falling within the category of alternative asset classes, such as private credit, real estate and hedge funds) which can play a significant role in driving portfolio returns while mitigating risks. There are other indices to consider, such as the one below which shows the value of post-war and contemporary art relative to the S&P 500 total return since 1995. The outperformance of the world’s most popular equity index is clear.

Nevertheless, while indices are an interesting way to view the performance of the art market, they shouldn’t be relied upon entirely as the data from the art market is quite opaque.

For example, the famous Mei Moses Indices has several shortfalls, as Madelaine D’Angelo (CEO of Arthena) points out. One of them is the very method used to build the performance trackers, which is called the repeat sale method. The drawback is that this method only uses a portion of available data as repeat sales are typically a small fraction of total sales in the art world (versus 90% in the real estate market). This point was also made by Arturo Cifuentes, a professor at Columbia Business School. However, gaps in data when working to build indices are not new issues – most such tools out there will be imperfect due to data-related or methodology-related issues.

Therefore, investors should use these tools in collaboration with a broader research of the art market, focusing on individual artworks, developing strong relationships with dealers and galleries and getting to know the overall sentiment of the market. Artnet, the world’s first dedicated 24-hour global art market newswire, highlights that there are diverse factors which impact the art world ranging from what one would expect – the activity of museums and exhibitions – to law, politics, technology and even developments in the field of archaeology.

Moreover, a store of value does not simply mean to appreciate in price but also to protect the capital invested during times of economic and market turmoil. As such, we have to look at art in the context of a portfolio, rather just than a standalone investment.

As a portfolio is often made up of multiple asset classes, let’s see how art fares relative to other investment opportunities.

According to research from Citi, the returns from the art market are not correlated to other major asset classes, making art an attractive portfolio diversifier. This is confirmed by data from Masterworks below.

“Art is different – it won’t fluctuate in value as a more traditional investment avenue such as oil or gold can […] and retains its value well”, explains the team from Maecenas, an art investment platform which is entirely blockchain-based. In other words, art is less volatile.

As an asset class, art (at least the contemporary art) also does well during times of higher inflation.

However, there are other features of the art market which investors have to account for besides art being a good hedge (risk mitigator) and capital protector.

Art: liquidity considerations

Naturally, the art market is less liquid than most markets for financial assets and the transaction costs associated with buying and selling art can be an important factor for investors. “Paintings, sculptures, drawings, prints, artifacts are unique and heterogenous objects. They are affected by indivisibility and lumpiness, their monetary valuation is not obvious as depend on complex taste structures and the availability of artwork; in turn, masterpieces tend to register infrequent sales. Finding buyers and the possibility of forgery imply that transactions costs are non-trivial, often requiring the intermediation of auction houses and art galleries that charge significant fees for their services, including the verification of authenticity and provenance of the artwork” writes Andres Solimano from the International Centre for Globalisation and Development.

Until recently, it was not possible to own parts of an artwork (fractional ownership). However, this has begun to change, with the development of tokenised technologies, and the emergence of platforms that enable multiple investors to back an artwork, a move which can improve the liquidity in the artworld, although whether this is possible is not yet clear.

“From a legal perspective, selling digital shares of artworks amounts to trading securities defined as investment instruments in debt or equity to be actively traded for profit”, writes Sophie Chung for the Centre for art law.

However, there are some worthy advantages to a less liquid asset.

Firstly, it acts as a hedge against the psychological need to trade (to buy and sell frequently), allowing the value of the artwork, if it meets the above criteria of being real art in demand, to appreciate over time. After all, art is a long-term investment, preferably over multiple decades and generations.

Secondly, an illiquid asset that is projected to appreciate in value can serve as a collateral against which the investor can borrow (i.e. access liquidity via credit).

Thirdly, illiquid assets can dampen portfolio volatility: illiquid assets’ prices do not fluctuate as much as the prices of liquid assets, meaning that when markets are volatile, the overall portfolio value does not fluctuate with the rest of the more liquid instruments. “Sacrificing liquidity is a valuable investment strategy since not all your holdings need to be easily tradeable” wrote Tom Bradley, chair and CIO at Steadyhand Investment Funds.

Finally, there is the question of performance. “Over long periods of time, illiquid assets have historically outperformed public market stocks and bonds, net of fees” explains Evercore, a wealth management business. This is due to the illiquidity premium: the extra rate of return investors expect to earn above liquid assets because they have kept their money locked for longer (as they could not convert them into cash as fast as they could if they traded stocks, for example). 

Art: cash flows and valuation

Artworks themselves do not produce any cash flow. “From a financial perspective, art by itself does not offer any constant cash flows; its financial return derives only from capital appreciation through time,” explains Artemundi, a global art fund that was active between 2010 and 2015.

However, investors can generate cash flows off of art pieces by accessing credit. Furthermore, art can also be rented out. Therefore, there are ways to create a more consistent return stream from owning art, but the major source of profit comes from capital appreciation.

Consequently, traditional valuation methods, such as discounting cash flows, are not necessarily applicable to valuing art. The drivers behind price appreciation are, as with any other asset, based on supply and demand forces – the supply of purchasing power (cash and credit) relative to the net supply and demand of a particular good, such as artworks.

Art: risk considerations

We have already touched on some of the risks associated with artworks as viable investments, such as illiquidity, lack of dividends (or a steady income stream) and the opaqueness of the market. Other risks include associated costs and fees with storing the pieces of art, dealing with counterfeits, the potential for destruction, regulations (or the lack of) and capital gains tax.

Source: Credit Suisse

Let’s look at a few of these risks in more detail.

Regulatory considerations are becoming a more important factor for investors who are thinking about buying artworks. For example, in the UK, during 2020, “the transposition of the 5th Anti-Money Laundering Directive into national law required all Art Market Participants – Galleries, Dealers, Advisors & Auctioneers – to train staff, define Policies, Controls and Procedures and carry out Customer Due Diligence prior to concluding a sale,” writes the “Art Market Regulation Report” from Arcarta.

This call for more transparency however is at odds with the way the art market functions: based on discrete personal connections and with a great respect for client privacy.

Between February and June 2021, the UK government required all Art Market Participants to register their business for Money Laundering Supervision. According to data from Artlogic, between January and December 2020 almost 2,600 Customer Due Diligence reports have been created, suggesting that the industry has moved fast in compliant with the advent of regulations.

The other risk which is worth discussing here is tax. Tax regimes differ from country to country and investors looking at artworks as potential opportunities for capital allocation should factor these differences into their assessment.

One of the tax considerations is the capital gains tax which is often triggered when an asset is sold at a profit. “The tax implications between someone who invests in art and someone who collects art can be substantial. The main difference between the two is that an investor purchases art with the purpose of profiting on it in the future. In any case, both collectors and investors must pay capital gains tax on any profit they make from their collection,” explains Groco, an advisor to the ultra-affluent.

Furthermore, the risk of deterioration of the artwork also needs to be considered. There can be many causes for why pieces of art may deteriorate, including: storage conditions, bacteria, faulty techniques and even climate change. Consequently, investors need to take the necessary steps to ensure that this risk does not materialise.

With these considerations in mind, let us review the investment case for art.

The investment case for art

Over the long-term, the reasons for why art should be an appealing asset for investors’ portfolios emerge quite clearly: it benefits from structural tailwinds (a relatively low supply of quality artworks given the growing demand) which underpin good chances of future capital appreciation and it lowers the portfolio risk profile in two ways: firstly, due to its low correlation to other asset classes and secondly, because of its low liquidity it doesn’t suffer from swift price changes (volatility).

Moreover, over shorter periods of time, art can also play an important role as a hedge against inflation. In fact, art can be an excellent investment in times of monetary disfunction. For example, when markets are flush with liquidity due to easy monetary policy and central bank asset purchase programmes, that purchasing power must be allocated somewhere. Given the limited supply of artworks, this may be a net positive development for art investors. Moreover, during times of profound currency debasement (hyperinflation) and through periods of social and economic unrest, art, similarly to gold, can serve as a valuable asset to trade for other goods and services.

Not to mention that art has an aesthetic and social value which no other asset class, with the exception of perhaps certain real estate, posses.

These benefits however do not come without risks, some of which are unique to this asset class. One of them is the lack of a steady income (such as dividends). This aspect also makes valuing art with traditional methodologies an impossible task. However, art can serve as collateral for accessing credit which can then be allocated to assets that provide a regular income.

Additionally, concerns around new regulations and what impact of closing down art galleries and auctions can have on the important subtleties of doing business in this market have yet to be alleviated. Nevertheless, as we have seen so far, the art market has evolved over the years and continues to adapt to novel ways of doing business. This includes moving online during the lockdown periods and successfully and swiftly complying with the new AML law.

Investing in art is not a mathematical decision, although calculations underpinning future returns should play a role in that decision. To look for opportunities in the art market is more a philosophical perspective on economics. More specifically, it is related to how one seems the drivers of economic change going forward, which ultimately informs one’s preference of tangible assets over financial assets.

Conclusion

The process of looking at art as a valuable store of value, be it economic or social value, has a long history that spans several centuries. However, with the proliferation of modern financial instruments, such as pooled investment vehicles, artworks have been made accessible to a wider range of investors.

When thinking about art as an asset class, we have seen that it is best classified as an alternative asset class, as opposed to the traditional stocks and bonds.

The benefits that artworks can add to investors’ portfolios are primarily of diversification and capital appreciation, although they can also dampen volatility. As with any investment however, art is not without risks which needed to be balanced against both its benefits and the investor’s broader financial needs. For example, the need for liquidity and the access to credit of the investor in question are important considerations when thinking of allocating to artworks.

The intention behind this document is not to give you a definitive answer of whether or not you should invest in art, but to highlight a roadmap of the nature of the art market and the way artworks can be viewed as an asset class. The decision of what to buy and when to buy belongs to you.