When Edvard Munch’s “The Scream” recently sold at auction for $119.2 million, I wondered about how investments in the art world have been performing over the last few volatile years. “You Can’t Buy Taste” by David Serchuk provides some interesting answers. Among the statistics offered in the article: “The Mei Moses All Art Index” posted a 10.2% in 2011 and, according to Deloitte Luxembourg and Artastic, a firm that provides intelligence on art as an asset class, the global art market grew from $21 billion in 2002 to $64.9 billion at the end of 2011. Deloitte also reports on performance of various “sectors”; contemporary art—including artists such as Jackson Pollock, Roy Lichtenstein and Andy Warhol—returned 11.4% last year while traditional Chinese art returned 15.8%.
Referring to the art market as a “minefield for the uninitiated,” Serchuk offers numerous warnings to would-be investors. First, he mentions that commissions can be as high as 40% of the selling price of a piece. He also notes that performance data for art, like that quoted above, may be flawed because the Mei Moses All Art Index uses only data gathered from pieces of art that have sold at auction twice and excludes auction pieces that don’t sell. Add to that the fact that insider estimates have auctions accounting for less than half of all art sales and the measure seems even more unreliable.
If you invest in art, you should also be mindful of the fact that when you leave your collection to heirs that the value of treasures must be declared as part of your estate and can be subject to estate taxes. If you own an inherited piece of art and this documentation is not complete with any estate taxes due paid, you may have trouble selling it through an auction house.
If you are interested in investing in art, it behooves you to consult with an expert. Just as a real estate broker often holds the key to the secret of the local housing market, it helps to work with an art consultant who can represent you in deals and ensure you don’t get taken.
With correlations of numerous traditional asset classes moving closer, art’s low or negative correlation with mainstream financial investments may propel it to be viewed as a serious asset class.