Art Investments- An Alternative Investment Strategy With a Visual Appeal
Art - Originally patronized by keen aesthetic connoisseurs as a medium of creative expression, it has increasingly transformed its alluring appeal towards enrapturing the eyes of sharp-eyed curators as an alternative investment. These works of major artists have progressively served as a medium of tangible investment offering excellent diversification benefits as the returns generated by these investments are significantly uncorrelated to traditional stock and bond investments.
While art has its many advantages of being a tangible investment, uncorrelated to financial security investments, the disadvantage is that these investments are illiquid and are susceptible to asset bubbles. Off late, Art prices have been soaring peak to peak. An indicator is the Moses Mei Fine Art index that measures the performance of U.S. postwar and contemporary art, which rose 55% on an annualized basis for 2006.
Several hedge funds have now turned to these exotic investments bought for short-term trades. Recently, the Art Trading Fund, a Guernsey-listed close-ended company, announced that it has already raised GBP 10 million and hopes to raise GBP 25 million by the summer to invest in art in order to hedge the risk of a fall in the market using derivatives. These investments use a number of strategies, including direct investment in works of contemporary artists and exchange-traded options, closely correlated to the art market. This is the second hedge fund to invest in art, the first being the Fine Art Fund.
Also, various funds have been created for wealthy individuals to invest in works of art. But art- from its intrinsic nature- is perceived as an investment to own, display and flaunt. Which is why, till now, art has been treated as a mode of personal investment, contrary to intangible securities you could consider investing through a fund. Yet, investing in art is not for everyone.
A couple of things to watch out for whilst considering an investment in art is to purchase authentic appraised art, and to cull out the best works of an artist, however known or unknown, as these are generally the most liquid and sought after investments. Peruse through factors such as provenance, signatures, and the condition of the piece. Be judicious not to vie for works that are talked about extensively, rather look out for typical items that will always find buyers. Also, smaller items tend to trade higher than large works on a dollar/square inch basis.
So, before you take that leap towards purchasing a piece for your personal investment, be particularly careful, and in case you don't possess the requisite knowledge, consult a professional consultant to help you with your investment. Other than that, just enjoy your piece of art while it adorns your living room, sit back, and savor the adulation from your friends and visitors.