Considering art as an investment? Art dealer and advisor Carole Pinto shares her expert advice on the complex logic of the art market and factors affecting art as an investment.
There are significant differences between investing and collecting art–differences that everyone used to understand, before prices of artwork became astronomical.
One is for passion, and the other for profit. Collectors do not buy a basket of artwork–a few Impressionist paintings, some Old Masters, and Chinese porcelain–but instead concentrate on a few artists or type of art that appeals to them most.
Investors, on the other hand, are advised to diversify their portfolio in order to mitigate risk. In recent years, high prices for certain artists have made the notion of investing in art increasingly accepted. Private equity art funds have sprung up, and art specialists in personal banking departments of financial institutions such as Bank of America, Citibank, and Goldman Sachs, help wealthy private clients ‘place’ their equity in artwork.
But no matter who you are–wealthy investor or university art student–if you are interested in the world of art, it is important to understand how the ‘art market’ functions.
There are four critical truths about the art market today:
Art is not one large market, but a series of smaller markets representing over $60 billion in sales annually. It is the largest unregulated market in the world. One of the difficulties of regulating the market lies in the fact that works of art are unique and therefore not fungible, and value is impossible to calculate against any independent measure at any given point in time. Another difficulty is imposing regulation on dealers and auction houses who, for the most part, want to remain free agents in running their business.
2: Divided market
The increase in sheer wealth of the top .01% of the world’s population in India, Russia, China, North and South America has created a huge split in the market, with the high-end moving much further away from rest.
3: More players involved
Exponential growth in the art market means that there are many more players, opening doors for people who once did not have access to the market, but with a greater risk of mistakes being made in the field of provenance, ownership and authenticity. In addition, there are many more middlemen in the market today, from art advisers, to brokers and dealers, which can lead to a diffusion of responsibility when it comes to authentication of artwork.
4: Authentication concerns
As the art market becomes more global, its growth depends on making education accessible and reliable. More art academics are now scared to take a position on authenticating a work of art, due to the high risk of a lawsuit from disgruntled collectors. It is doing a tremendous disservice to the art market, as education allows the market to expand.
The economics behind what we call the ‘art market’ are, needless to say, complex. There are a countless number of ways to analyze the market and determine a worthwhile purchase. But again, the definition of ‘worthwhile’ is highly dependent on whether you identify as collector or an investor.
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Read Carole Pinto’s take on the 7 factors to consider when investing in art.
After receiving a BA in Architecture and Fine Arts from the University of Pennsylvania and an MBA from Columbia University, Pinto traded in corporate finance at Solomon Brothers for the art world, working at Sotheby’s and New York’s Metropolitan and Brooklyn Museums before striking out on her own as an art advisor and private dealer specializing in late 19th- and 20th-century paintings.