Art as an Alternative Investment Asset II
The relationship of art as an investment brings up the question of how can art have any correlation to a mainstream asset class? The consideration of art being lurched into the same field as stocks, bonds and shares, causes much dismay to many within the art community. Economists and banking institutions have quite responsibly shown the link between art and investment and most importantly, how art can be considered alongside traditional financial assets.
Assets are grouped together based on their characteristics of their underlying companies. Just as in managing traditional assets, art is grouped based on the period in which it was made, the artist (whether they are living or dead), style and medium. The main attraction of the art market and the prime reason for its resurgence as an investment is its low correlation with other financial assets. Art is in a “special asset class of its own as it is generally more risky than stocks, bonds and securities and should in theory generate higher returns for investors” (Kusin, 2007). Art acts as an asset because it is a piece that is owned and holds monetary value and can be exchanged for such a value. However, the issue of value is often subjective because of its heterogeneous nature. Traditional assets are homogenous commodities they cannot be differentiated, as they are the same value per stock per company. In art, each piece is unique, thus making it a market comprised of heterogeneous products.
When it comes to asset planning, one of the key concerns for investors is how well an asset can hedge against inflation. Art which outperforms inflation has become a valuable and sought after holding for an overall portfolio. The present situation of art as an inflation hedge can be explained through the past, “it was theinflation panic of the late 70’s-early 80’s that was the real economic fuel behind the new vitality of the art market. This newly prosperous, aesthetically orientated generation, saw their cash eroding in value and rushed to put their money into tangible assets such as art” (Deitch, 1989). Many art dealers flaunt the tangible characteristics of art as a valid asset. “It’s safer than shares it’s always there and there will always be a value for it” (Abdini, 2007). There is truth to the theory that when the stock market is in a downturn the art market booms. When markets are bad, people like to invest in something they can touch (Schweizer, 2008).