Art- one piston in the financial engine that fired last year
WIN SMATHERS, MANAGING DIRECTOR AT HUNTER ASSOCIATES, HAS DESCRIBED THE MISSION OF THE FIRM, ITS INVESTMENT POLICIES AND CHARACTERIZED THE DIVERSITY OF VARIOUS INVESTOR’S GOALS AND ATTITUDES. FOR MANY MORE INDIVIDUALS AND FAMILIES IN RECENT YEARS, ART HAS BECOME AN ALTERNATIVE INVESTMENT. OFTEN, AS A DEALER, THE COLLECTOR IS AN IMPASSIONED INDIVIDUAL OR COUPLE WHO HAVE FOCUSED ON A PERIOD OF ART THAT IS COMPELLING TO THEM. IN TIME, THEIR INSURANCE COMPANY REQUIRES AN UPDATED FORMAL APPRAISAL AND THE MONETARY VALUE OF COLLECTING BECOMES AS APPARENT AS THE AESTHETIC AND EMOTIONAL ONE. IN RESPONSE TO THIS AREA OF INVESTMENT, ART INDICES HAVE DEVELOPED TO TRACK VARIOUS PERIODS OF ART, ARTISTS AND EVEN PERIODS WITHIN ONE ARTIST’S OEUVRE.
WIN, ACCORDING TO A NEW MEASURE BY Artnet AG, ART BY DAMIEN HIRST AND ANDY WARHOL OUTPERFORMED THE STANDARD AND POOR’S 500 INDEX OVER THE PAST TEN YEARS. ART IS GAINING GROUND AS AN ALTERNATIVE INVESTMENT WITH MANY NEW COLLECTORS FROM THE INVESTMENT WORLD AND FROM EMERGING MARKETS.
HOW RELIABLE DO YOU THINK ART IS AS AN ALTERNATIVE INVESTMENT? IN SPREADING RISK? HOW DO YOU VIEW IT IN TERMS OF DIVERSIFICATION IN A PORTFOLIO?
I wouldn’t call myself an expert on the art market but I’ve done enough research over the 20 years I’ve been advising clients to know that art is like any asset, subject to peaks and valleys. And like other assets, its worth is very subjective. I too saw the statistic about art returns besting equities over the last decade. Currently, the art market is on a tear but as we saw in ’08, when there was a period of financial crisis, all asset categories, including art prices, came down significantly. The fact that the art market as measured by the Mei Moses All Art Index finished 2011 up by 11% demonstrates why having alternatives in a portfolio makes sense. The S&P 500 was flat last year. Hedge funds were down on average about 5%. Non-US stocks were mercilessly beaten down. Art was one piston in the financial engine that fired last year when many others did not.
As you mentioned, globalization has opened the art market to the new-found wealth of Asia and the emerging markets. This trend is in the early innings.
DO YOU OBSERVE A BOOM IN ALTERNATIVE INVESTING AND, IF SO, HOW DO YOU ACCOUNT FOR IT? IS THE CONCERN WITH THE DEVALUATION OF PAPER MONEY A DRIVING FORCE IN HIGH NET WORTH INDIVIDUALS INVESTING MORE IN ‘REAL INVESTMENTS’ SUCH AS WINE, COMMODITIES AND ART?
Alternative investing is nothing new. Institutional investors like pension funds and university endowments have been diversifying beyond the traditional asset classes for decades. The push down of alternative investing to the individual investor is relatively new and is certainly in vogue. The creation of innovative products like exchange traded funds has provided investors simple access to alternatives. Also, the low returns in the stock market and extreme volatility of the past decade has compelled investors to seek ways to boost returns and mitigate risk. The low-interest rate environment has forced investors to seek new homes for their idle cash, especially when the negative carry issue of art (Art pays no income) is less severe, relative to cash and short-term investments. A corollary to this is the devaluation of fiat money. A way to preserve purchasing power is to own hard assets, like art, precious meets,First Growth wine, etc.
NEXT WEEK WIN WILL OUTLINE, FOR US, WAYS TO DEVELOP APPROPRIATE INVESTMENT STRATEGIES INVOLVING FINE ART. PLEASE CONTRIBUTE YOUR COMMENTS AND QUESTIONS.