Investing in Art

Abstract

In recent years, there has been increased interest in art as an investment class and in the possibility of securitizing art portfolios. Several entrepreneurs have sought to market art investment funds, targeted in the main to wealthy clients. The authors use an early study of the investment potential of one segment of the art market, the market for modern prints, as a cautionary tale. Passive investment in a diversified portfolio of art is not likely to provide high real returns, except during a transition period when the segment of the art market is moving from the periphery to the mainstream. The authors show that, in the period 1979 to 2003, the real return on a diversified portfolio of modern prints averaged only 1.22% per year, less than the real return on Treasury Bills. This is in dramatic contrast to the estimated real return of 21% per year in the preceding 25 years.

TOPICS: Real assets/alternative investments/private equity, wealth management, risk management, performance measurement