Art & finance: the latest from the barricades

stages_eiffelAdam Levine of A.R.T. filed this report from Paris:

Last Thursday, October 21, Deloitte sponsored its third annual ‘Art & Finance’ conference, in Paris. The overlap between the worlds of art and finance is, to the discomfort of many people in and around the art world, not insubstantial (though not yet ‘substantial’ either). Whatever the case, it is growing. A number of themes emerged at the conference, three of which are worth highlighting.

First, there was widespread agreement that the market is opaque and inefficient. The consensus of this self-selected group of art and finance enthusiasts is that something needs to be done.

Second, the next step forward would be to create a viable index that could be traded (and used to hedge against risk). A corollary, of course, is the illiquidity of the art market. I have been struck by how clever some of the methods for indexing the market are (particularly in dealing with the liquidity issue). I am equally impressed by the application of macro-economic theory to the art market. Without getting too far into methodology, however, I wonder if we have it wrong when we try to analogize standard economic models to the art market. Nobody wants to reinvent the wheel. But given the lack of identical product in the art space, I feel new methodologies will need to be explored.

The final theme to emerge at the conference was that art has become an asset class, and it should be treated as such, particularly by wealth managers. But clever arguments about asset allocation and fiduciary responsibility ran up against an uncomfortable reality: Art collectors, unlike those at this conference, on the whole do not appear to think of their art as part of their investment portfolio. The net result is an interesting tautology: Art is only an investment to those who consider it an investment.

What became very clear by the end of the conference was that there is a group of people working to build an image of art as an asset class. They are certainly onto something. They are smart. They also overwhelmingly have backgrounds in finance and economics.

Before we continue to develop art into an investment vehicle (in whatever way), let’s take a step back and think about what makes art different to other assets and markets, not what makes it similar. The art world has an extraordinary opportunity: to be the first market since the financial crisis to ‘get it right.’ I think we can seize that opportunity, but it requires rethinking—or at least, thinking critically about—the basic methods in our toolbox.

2 thoughts on “Art & finance: the latest from the barricades”

  1. This just in from Kate Cary Evans of Art Radar Asia:-

    Was there any discussion of the effect that technology is having on art market opacity? We are discovering new ways that technology can bring us relevant timely information. Google alerts can be set to track market news about a particular artist. We have also just discovered a new Google tool called Google Insights which may help to predict price activity. Type in an artist name and a graph comes up showing how much attention an artist is receiving measured by number of searches, over a period of years. News articles are attached to peaks and troughs. The results are intriguing. We would like to see some research on the correlation between search activity and price levels.

    Another issue which we are particularly interested in is the internationalisation of the art market and the growing prominence of China. 6 of the top 10 art auction houses are Chinese. As much of the market information is in the Chinese language, we wonder if the top price index publishers are getting this data into their indices. Technology helps to promote globalisation. But globalisation creates language barriers which deepen opacity. But no worries Google is working on its translation tool too!

  2. It is true that we now have more technology to find information and track the data that exists. The problem is still the quality of that data and what is missing. As I have said before on these pages (here and here ), for a true indicator of the market movements of a given artist or a given work of Art, we need a complete transaction register for every work by every tradeable artist. Until that happens we are seeing only a “managed market” view.

    Auction prices, the most commonly available source of market data, are also particularly vulnerable to market manipulation (price pumping during the auction, fake bids, pieces being bought in – and therefore off register); nowhere more so than in the Chinese auctions that Kate highlights. They are certainly a source of new sales volume; but it is hard to verify much of the data that comes out.

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