The main characteristics usually used to define art investments can be summarized in the following way: high-risk investment, illiquid, opaque, unregulated, high transaction costs, at the mercy of erratic public taste and short-lived trends. Artworks do not generate any cash flows that can be discounted, except to the extent that income can be obtained through lending and incurring expenses in the form of storage, insurance and associated costs. Art investments are also currently virtually ‘unhedgeable’.
This short description of art investments and the art markets might be enough to discourage many to look at it.
Globalization and research
With the long-termed, worldwide trend of increasing wealth, alongside a growth in knowledge about collectible markets, a much larger community has started to be interested in collecting and/or investing in art or rare collectible assets.
Art in the overall asset allocation strategy
Art as an asset is attractive over the long run as it is a store of value that generates moderate positive real return. Art has also a low correlation with stocks and bonds which offer diversification possibilities.
New types of collective investment vehicles dedicated to art or other collectible assets
Several new different initiatives around the world search to securitize several billion of US dollars of artwork, such as art investment funds, tradable art structure products or dedicated art trading exchanges.
Increasing interest from the financial industry
We can see a development of art as an asset class and related art services among the financial institutions. The offering mainly consists of three categories of art services: art advisory services, art lending and art investment services.
The art market is becoming more and more transparent due to research in finance and economics as well as date dissemination.
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