Is art a good investment if the stock markets decline ?
That question, in turn, invokes another question: can art be subject of a financial investment ? The trade in art is illiquid and relatively slow: it can take months before a work is resold through an art dealer. Moreover, the investment component is certainly not the most important source on the demand side. That all art increases in value, is not a generally accepted principle. That said, the value of art is derived from the demand and supply side and it can work as a hedge against inflation.
Does it apply to all artworks ?
The functioning of the art market, requires that there are manners to rely on pooled data enabling investors to track performance of an artist and his artworks. The greatest common divisor of these academic and scientific initiatives is that the data are too variable and limited.
So, investing in art is possible but a risky business ?
Absolutely, as an investor you are not protected in a similar way as if you were buying shares in a company. If you buy shares, a prospectus will provides you information on the market and the company. When purchasing an artwork, a gallery owner has, as a rule, no obligation to provide information. If he decides, however, to provide certain information, he is not bound to provide you complete information. Differently put, the investor has an duty to investigate whether the artwork he is purchasing actually has investment potential.
How do I invest in art ?
Investing in art was done through art fund. Those funds have been replaced in recent years by investment platform offering ‘fractional ownership’. This implies that the platform tenders an artwork to the public. Though these sollicitied tender offers it becomes possible to purchase shares representing partial ownership of an artwork. Investmentfirms that set up these structures (Masterworks, Feral Horses) promise huge ROI’s. They assume the collective management of the solf artworks. As an investor you are better protected as the investment platforms conduct theyr own due diligence on the existence of a market for the artwork. As an investor your are less dependant on your own investigation. On the other hand, as the exit horizon is set at ten years, none of these platform have been able to prove that the promised gains are, in fact, realized;
How about enjoyment of the artwork in your private home
Most investment platforms organize events to enable investors to enjoy the artwork in a particular setting. Enjoyment in your private home is not modality of these investment platforms. If you want to enjoy the artwork in your private home, you need to purchase the artwork at a gallery or art dealer. Few art collectors know that, even in the context of an outright sale in a gallery-context in Belgium, the gallery owner, can be held liable if you do not realize the return, when reselling the piece (preferably editions), the gallery owner predicted in his sales talk. For this liability to materialise, it should be proven that the gallery owner assisted the collector in the resale of the art piece.