|Art as an Alternative
by Kevin Radell
Auction prices for art masterpieces are climbing ever higher, and Wall Street is definitely taking notice. Thus, the one-day symposium titled "Art: An Alternative Asset Class" held at Christie's New York on Apr. 7, 2005. Lord Gowrie of the London-based Fine Art Fund chaired the event and offered insightful comments throughout. However, he set an overall tone of caveat emptor, warning on more than one occasion that art prices can be susceptible to fashion -- which is notoriously hard to predict. This note of caution would be reinforced by cordial disagreement among panel members on several key issues.
The first speaker was Michael Moses, the professor at NYU's Stern School of Business who with his colleague Jianping Mei developed the famous Mei/Moses Fine Art Price Index. Moses presented strong statistical evidence that art, as an investment vehicle, is able to retain its value and provide portfolio diversification benefits. Questions remain, however, about the Mei/Moses methodology and its optimistic assessment of the art market, but the issue was not discussed at the conference.
During the ensuing discussion, Moses would not commit either to the notion that we are presently in the midst of a "bull market" in art, or to the possibility that a repeat of the "boom-and-bust" pattern of the late 1980s art market might be in the making.
Ariel Salama, who is Global Head of Private Banks at ABN-AMRO, discussed the bank's recent decision to use a "fund of funds" format for its investments in the art market. Instead of selecting a single fine art fund, ABN-AMRO is investing in five separate art funds. Predictably, the list includes Lord Gowrie's Fine Art Fund as well as the nascent funds of the Boston-based Fernwood organization (which this month opened a New York office in the Fuller Building). The three other, less well-known funds are the Art Dealers' Fund, the Collector's Art Fund and the China Fund.
Salama predicted that over the next 10 years, as much as $30 billion of private equity capital would move into art funds as an alternative investment. He concurred with Moses concerning the benefits of fine art for portfolio diversification and outlined his vision of a global private banking index with 27 sub-indices, including room for art as an asset class.
Philip Hoffman of the Fine Art Fund spoke next and continued the drum beating, laying out his plan for investing in art in some detail. Vowing to stick to high-end quality and invest over 50% in Old Masters and Impressionist pieces, Hoffman cited compound annual returns in excess of 11% over a 25-year period from the legendary British Rail art investment fund in the 1970s. According to Hoffman, the key factors for success in art investing include the need for agility and cash on hand to seize opportunities; reliance on experts; and a critical awareness of the impact of changing tastes.
Noteworthy, however, was the clear disagreement in the subsequent discussion between Hoffman and Moses. The NYU pioneer of fine art index methodology
cited statistical evidence supporting lower expectations for growth
in value of higher priced work and better historical performance on
the low-end. Hoffman countered with the observation that on the low-end, only higher quality works appear at auction, presenting a methodological
selection-bias problem. Unfortunately for quantitatively oriented
attendees, the discussion on methodology ended there.
Finally, Marc Porter, president of Christie's Americas, added a seasoned auction-house perspective to the art-as-investment debate. He gave the audience a straightforward presentation of the complex array of factors contributing to future values of art, factors that include rarity, quality, freshness, condition and -- once again -- fashion. He compared the mature, and consequently rather sluggish, collecting categories (Old Masters, Impressionist and modern, silver, ceramics and glass, European furniture, antiquities) to the post-war and contemporary segments, with their apparently unbridled buoyancy.
Porter concluded his remarks with a call for title insurance in art sales (guaranteeing good title to the works, as is done in real estate transactions) and the need for organized regulatory structures in the areas of authenticity, condition and provenance reporting.
All in all, the symposium provided a chance for many in the audience
to associate faces with the new ideas that are forging the art as
an alternative investment movement in the financial services industry.
Distinguished panelists included Jon Bourassa of Citibank Art Advisory
Services; art advisor and former Phillips auction-house principal
Daniella Luxembourg; and Judd Tully, staff reporter for Art &
Auction magazine. At the gathering, the worlds of fine art and finance
searched for a comfortable meeting place, examining the possibilities
as well as the unanswered questions in this new field.
Artnet has developed custom valuation reports from its Price Database, the leading
source of primary research for thousands of museums, auction houses, professional collectors
and financial institutions. These reports and other statistical analyses of art market movements
will soon be available on the Artnet Financial Services website.
Professor Michael Moses
Picture not available
Viscount Charles Dupplin